EU Commission publishes new strategy to protect the stability of the European economic and financial system

On 19 January 2021, the European Commission published a new strategy to strengthen the European economic and financial system (see communication). The proposals contained in the communication are part of the “open strategic autonomy” approach to the role of the EU on the world stage established by the Commission. The proposals are long term, reflect an increased geostrategic orientation of the Commission’s economic policy for the EU and aim to protect European sovereignty. Specifically, the strategy contains proposals on strengthening the role of the euro as an international currency, the stability of the European financial markets, the effectiveness of EU sanctions and responses to extraterritorial sanctions by third countries.

Strengthening the international role of the euro and the European financial markets

The Commission recommends promoting the use of the euro among third countries, for example as a reserve and reference currency, in order to strengthen the international role of the euro. The benefits for the EU mentioned include decreasing the impact of foreign exchange price shocks and strengthening the international reach of European monetary policy, for instance. The Commission is also proposing several changes to the Markets in Financial Instruments Directive (“MiFID II”), including reducing some existing requirements for companies, in order to increase the competitiveness of EU financial markets.

Protecting European companies from foreign sanctions

The strategy’s focus on measures to deal with extraterritorial foreign sanctions is to be seen against the backdrop of the USA’s expansive sanctions policies. The marked increase in the use of extraterritorial secondary sanctions under the Trump administration, for example against Iran, violated international law and had a significant adverse impact on European companies with Iranian partners and economic interests in Iran (see News article of 14 January 2020, 5 October 2019 (in German only) and 7 August 2018). The sanctions introduced by the US have also brought the nuclear agreement with Iran to the brink of collapse.

The Commission proposes the following steps to be able to counter the extraterritorial sanctions and other unilateral trade restrictions imposed by third countries (mainly the US, but increasingly China as well) in the medium term:

• The Commission intends to carry out a thorough analysis of the vulnerability of European financial market infrastructure undertakings and the European financial market infrastructure to sanctions.
  
  
• The Commission intends to look for alternative instruments to protect flows of goods and services between the EU and trading partners affected by sanctions from the impacts of such sanctions (e.g. INSTEX, see our News article of 5 April 2020).
  
  
• The Commission wants the procedures under the EU’s Blocking Statute enabling companies affected by extraterritorial sanctions to take legal action to recover lost assets to be streamlined and improved (see our News article of 7 August 2018).
  
  
• The Commission intends to provide direct support to EU operators faced by sanctions in foreign proceedings.
  
  
• When assessing whether foreign direct investments in EU-based companies pose a security risk, the Commission wants to consider in future how far the investment could result in the company being more vulnerable to extraterritorial sanctions.

Improved implementation and enforcement of EU sanctions

The Commission has announced that it will be monitoring the uniform implementation and effectiveness of EU sanctions on an ongoing basis in the future, proposing a realignment where necessary. Besides this, a review is planned in order to assess the use of cryptocurrencies to circumvent sanctions.

The Commission has announced that it is launching a “Sanctions Information Exchange Repository” in 2021 with the aim of improving transparency. This is a database intended to facilitate the exchange of information regarding the implementation and enforcement of sanctions between the European Union and Member States.

The new strategy also provides for a new group of experts consisting of representatives of Member States and the European institutions who will deal with issues related to the implementation of the Blocking Statute and the effects of foreign sanctions.

There are also plans to establish an EU-wide single contact point designed to improve coordination between Member States and the EU on issues related to the implementation and enforcement of European sanctions which have cross-border dimensions.

Finally, the Commission reports that it is to set up a dedicated anonymous reporting system which is to allow for whistleblowing, in order to prevent the sanctions being evaded by companies and by Member States.

Assessment

With the new strategy, the Commission is providing an important and long overdue impetus to achieve a stronger role for EU foreign trade policy and protection of European sovereignty. The political will to boost the EU’s economic autonomy is understandable in view of the changing geopolitical situation. However, key points of the strategy are still poorly defined and it is often limited to announcing analytical and evaluation processes. Furthermore, the Commission’s proposals to deter and counteract extraterritorial coercive actions by third countries are still awaited with great interest. The Commission intends to present these in the course of the year.