The EU must develop a values-based investment strategy, rooted in transparency, sustainability and regulatory reliability
The global economy is shifting from convergence to fragmentation. In this emerging geography of capital, investment is no longer determined solely by market fundamentals, but increasingly by geopolitical alignment. Finance follows flags as much as it follows profit signals, and the European Union is not ready.
For three decades, globalisation fuelled an era of economic convergence. Capital, goods, people, and data flowed across borders under a broad consensus: that economic interdependence would reduce conflict, and that politics and markets could remain largely separate. That world is gone. Strategic rivalry, security concerns, and ideological divisions are redrawing the global map, and capital markets are on the front lines.
Nowhere is this clearer than in the escalating economic rivalry between the US and China. The Inflation Reduction Act, with its sweeping industrial subsidies and reshoring incentives, is pulling investment back to the US. China, in turn, has ramped up export controls on critical raw materials. Both countries are explicitly aligning capital allocation with national interest. But this is not a bilateral story. India’s ‘Make in India’ programme, ASEAN’s supply chain repositioning, and the EU’s own push for strategic autonomy all reflect a broader reality: the rules of globalisation are being rewritten.
Capital is becoming conditional. Access to markets increasingly depends on political compatibility, supply chain reliability, and security cooperation. This affects everything from clean tech and semiconductors to cross-border payment systems and investment corridors.
The rise of initiatives like the India–Middle East–Europe Economic Corridor or non-dollar trade settlements within BRICS signals a turn away from purely market-driven globalisation towards strategic regionalism.
In this new world, the EU faces a dual challenge: to protect its economic sovereignty, while remaining open and globally relevant. It cannot retreat into defensive regionalism, nor can it rely on the fading rules of a liberal global order. What it needs is strategic clarity and institutional reform.
The way forward: reducing fragmentation and building trust
Internally, the EU must accelerate efforts to complete its capital markets union. That means moving beyond fragmented supervision, simplifying cross-border investment, boosting liquidity, and creating meaningful long-term savings and pension products. The Savings and Investments Union (SIU) framework is promising, but it risks becoming yet another iteration of superficial adjustments that fail to address Europe’s capital market deficiencies, particularly if implementation remains slow and politically diluted.
Externally, the EU must develop a values-based investment strategy. This is not about competing with Washington or Beijing on subsidies. Rather, it is about building trusted investment corridors with like-minded partners – in Africa, the Indo-Pacific, and the Americas – rooted in transparency, sustainability, and regulatory reliability. The EU’s regulatory power has global reach, but without economic muscle behind it, the ‘Brussels effect’ will lose credibility.
More fundamentally, the EU needs to strengthen its voice in global economic governance. Institutions like the International Monetary Fund (IMF) and World Bank are under strain. Reform efforts, from capital increases to quota adjustments, remain contentious. Meanwhile, new institutions, such as regional development banks, alternative payment systems, and digital currencies, are filling the vacuum. Europe must not be a bystander to these shifts. It must shape the system, not simply adapt to it.
The stakes are high. If the EU fails to act, it risks becoming a rule-taker in a world where the rules are increasingly dictated by power. Worse, it could fragment internally, with member states pursuing divergent strategies that weaken the single market and undermine the bloc’s global relevance.
Finance will always chase returns. But in a fragmented world, those returns are increasingly filtered through the lens of national interest, supply chain resilience, and political alignment. If Europe wants to remain an economic power, it must learn to play by the new rules – and write some of its own.
Apostolos Thomadakis is head of research at the European Capital Markets Institute (ECMI) and research fellow, financial markets and institutions unit, at the Centre for European Policy Studies (CEPS)
