On September 9, President Mario Draghi published a report on “The Future of European Competitiveness”, underscoring the need for the EU to strengthen its investment screening mechanisms. The report was part of a broader effort to assess and strengthen the EU’s economic and strategic resilience in response to increasing global competition and geopolitical challenges. Draghi’s report highlighted the EU’s weaknesses in key areas such as technology, energy and critical infrastructure. Draghi’s report makes several important statements underscoring the importance of national security reviews and the need for EU resilience. Currently, FDI review is a national competence and member states are only required to exchange notifications and information.
“This fragmentation prevents the EU from leveraging its collective strength in FDI negotiations and complicates the development of a common FDI policy,” the report said. In fact, the EU’s inward direct investment review focuses on individual investments at national level. But are European governments ripe for a shift in capacity and ‘defragmentation’?
Just days before the report was published, Spain’s Council of Ministers had ordered the Hungarian company Ganz Mavag (partly owned by the Hungarian State Fund) to sell the Spanish railway manufacturing company Talgo, citing risks to national security and public order. Blocked the SA takeover. Although details are still under wraps (the FDI decision has not been made public), speculation is linking the decision to several factors. According to one theory, the Talgo will be equipped with advanced engineering solutions that will allow seamless movement between railway lines in Ukraine and Europe. Some researchers have focused on potential ties between Hungary and Russia, such as the commercial ties between Hungarian oil and gas giant Mol and Russian oil companies. Whatever the reasons, it seems clear that MaVags’ relationship with the Hungarian government and concerns about Hungary’s proximity to Russia played an important role.
Of course, the Hungarian government and Prime Minister Orban have been very outspoken about how the EU should engage with Russia. But where does this stop? In Germany, both the far-right party Alternative for Germany (AfD) and the newly formed left-wing party Bundniss-Saala Wagenknecht (BSW) are gaining popularity for their pro-Russian positions. (Forecasts for the 2025 federal elections show that the AfD could win 18% of the vote, while the BSW is expected to get 8.1%.) Meanwhile, Austria, which has historical ties to the Kremlin, The far-right Freedom Party (FPÖ) received the highest number of votes in recent national elections. Voters may have to choose between Marine Le Pen and Jean-Luc Mélenchon in the second round of France’s next presidential election, both of whom have shown sympathies for Russia in the past.
Spain’s decision in Talgo is not an isolated case of an EU government blocking an acquisition by an EU company. In 2023, Italy blocked a bid by French aerospace and defense company Safran to buy Microtechnica, a manufacturer of parts for Eurofighter jets. Italy has a law that allows it to review transactions within the EU. There are also many examples in France where EU buyers have had to accept commitments. In Romania, all purchases in sensitive sectors (broadly defined), as well as non-EU buyers, are screened. Germany is also reviewing EU investment in military companies.
Centralizing FDI powers in the European Commission requires neutrality with respect to acquisitions within the EU. The above case law suggests that Member States generally wish to protect final decisions regarding FDI reviews. And indeed, efforts to harmonize the EU’s draft FDI regulations (read more) are facing resistance and are unlikely to come into force any time soon. The current debate on the examination industry minimum list and the synchronization of national applications is causing intense debate, but is far from Draghi’s vision of a European approach on substance.
The European Court of Justice (ECJ) is also unlikely to intervene. (Insert link to previous blog) A notable example is a case involving Xella Magyarország (Xella), a Hungarian company wholly owned by a German company. The company itself is owned by a Luxembourg-based company, with ultimate control vested in its Bermudian parent company. , associated with the Irish people. A dispute arose with the Hungarian Minister of Innovation and Technology over the acquisition of 100% of the shares in Llanes Es Tarsa, a company specializing in the mining of gravel, sand and clay. The ECJ held that Xella was free to establish itself as an EU company. However, the court noted that acquisitions in sectors such as oil, telecommunications and energy may raise security concerns and may justify restrictions on fundamental freedoms. As for gravel, sand and clay, the court unsurprisingly found no evidence of a serious threat to national security. Other sectors, such as railways, as seen in the Spanish case, will need to be treated differently.
While Draghi’s report will no doubt influence the debate on EU resilience, it remains to be seen whether it will lead to the fundamental changes needed to implement the report’s recommendations on FDI management. Although it seems unlikely that a shift in capabilities will occur in the medium term, other points may be addressed sooner. For example, Draghi’s report reveals that there is a gap regarding greenfield investments, which are currently excluded from FDI screening. He emphasizes that the asymmetry created by small member states negotiating with large foreign investors can lead to the extraction of undesirable concessions by foreign countries. A further point supported by the report is the management of foreign investments to preserve important intellectual property rights and know-how.
For businesses, identifying geopolitical risks is more important than ever. Unlike governments, companies do not have access to intelligence agencies, diplomatic channels, or large-scale data analysis to identify emerging trends and threats. A stable and predictable environment within the EU would already be a step towards greater certainty. There is much work to be done, but the only prediction we can make with confidence is that FDI management will not be boring.
