Balancing security and economics: domestic state-firm relations and investment screening mechanisms in Europe

Abstract

In an era of intense geopolitical competition, concerns about the impact of foreign investments in strategic sectors of the European economy have led policymakers to review European investment screening mechanisms (ISMs). In doing so, European institutions and member states have to find a balance between security and economics, maintaining a favorable environment for potential investors while simultaneously protecting specific sectors that they deem important for European and national security. We argue that the existing structure of state-firm relations decisively shapes the institutional configuration of European ISMs at the national level. We identify two ideal-typical patterns of state-firm relations: Public governance and private governance ecosystems. We hypothesize that variations in domestic state-firm relations decisively shape the institutional configurations of European ISMs, and, more broadly, how European governments and firms navigate the trade-off between openness and protection of strategic assets.