For decades, the European Union has been a staunch advocate for the free movement of capital, a fundamental principle enshrined in its founding treaties. However, in recent years, a growing concern has emerged about the potential risks to security and public order posed by certain foreign direct investments (FDI). This tension between economic openness and the protection of strategic interests has crystallized in Regulation (EU) 2019/452, a landmark piece of legislation marking a significant shift in the EU’s approach to FDI screening.
FDI: engine of growth or Trojan Horse?
FDI is defined in the Regulation as any type of investment made by a foreign investor with the objective of establishing or maintaining lasting and direct links with an undertaking in a Member State for the purpose of exercising an economic activity, including investments that enable effective participation in the management or control of a company. Historically, the EU has embraced FDI as a vital engine for economic growth and the development of the internal market. The free movement of capital was established in the Maastricht Treaty, reflecting the rise of economic liberalism and the free market. Furthermore, Article 63 of the Treaty on the Functioning of the European Union (TFEU) prohibits all restrictions on capital movements between Member States and between Member States and third countries.
However, the global context has evolved. The 2008 financial crisis prompted the first calls for greater regulation of FDI, as concerns grew over the vulnerability of strategic sectors. The turning point came in 2016 with the acquisition bid by the Chinese conglomerate MIDEA for the German company KUKA, a global leader in industrial robotics and automation and a key sector for Germany’s Industrie 4.0 strategy. This event highlighted the EU’s dilemma: the importance of FDI versus an international landscape of increasing competitiveness and global fragmentation. The main concern was the vulnerability of key sectors, such as energy, telecommunications, and emerging technologies, to acquisitions by third-country state-backed investors, particularly those from China. While economic openness has long been a pillar of EU identity, recent geopolitical tensions have exposed the risks of allowing critical assets to fall into foreign hands. 
The justification behind Regulation 2019/452
The adoption of Regulation 2019/452 is justified by several key reasons. There has been a change in the paradigm of direct investments, as its general perception has moved from being a tool for economic growth to being a power tool. Not only has the origin and destination of investments changed, but there is a growing concern about the presence of investors backed by third States, especially the People’s Republic of China.
The risk lies not only in state backing, but also in investments targeting essential economic sectors or technological companies which, if controlled by foreign investors (even without state backing), could pose a risk to public order and security. The decrease in the value of relevant European companies of strategic importance has been exploited by investors from third countries (often state-owned companies), including from authoritarian regimes, to gain control. It can become detrimental to the European Union’s ability to self-supply essential products and services.
There has also been a certain level of frustration in some Member States due to the lack of reciprocity in allowing European companies to invest in other states (such as China) or to access foreign markets more freely. This constitutes a weakness since any Chinese company may be able to invest in Europe, but European investors are not allowed to develop such activity in China.
Additionally, the Regulation aims to safeguard the public order and security of the Member States, as well as the common interests of the EU. These common interests include national security, public safety, and the integrity of critical infrastructure and technologies. The Regulation also seeks to safeguard strategic resources, sensitive data, and maintain the EU’s economic sovereignty and strategic autonomy.
Finally, the need to establish a common enabling framework that provides legal certainty for both States and investors, while ensuring that control measures comply with specific requirements, has become evident. This is because the previous framework lacks legal certainty due to the myriad of different regulations in the Member States. This certainty is a crucial element if one desires to offer a reliable environment for establishing an investment. Furthermore, this is coupled with the fact that certain States lack investment protection or screening mechanisms, which leaves them more vulnerable to potentially harmful foreign investments.
A common framework, not a straitjacket
Regulation 2019/452 does not oblige Member States to adopt national investment screening mechanisms. Instead, its objective is to confirm a pre-existing state competence, while establishing procedural requirements to achieve greater coordination. Nor does the Regulation aim to authorize such measures, as these were already compatible with primary EU law. So, despite the EU’s efforts to defend strategic autonomy, the enforcement of this Regulation remains fragmented and largely in the hands of Member States.
The Regulation, however, introduces some key requirements for national controls. These include transparency and non-discrimination, deadlines respect, confidentiality, the right to an appeal, and preventing circumvention of controls. To adhere to the key requirements, the Regulation envisions that each Member State notify the European Commission and other Member States about any FDI that is subject to screening. Although other Member States may make observations and the Commission may issue opinions, these are not binding on a Member State. The ultimate decision on the screening of the investment, regardless of Regulation’s procedural obligations, always rests with the Member State hosting the FDI, which is expected to act in accordance with the principle of sincere cooperation, as enshrined in Article 4(3) of the TEU.
It is also important to note that the Regulation does not dictate the establishment of reciprocity requirements (or other economic conditions) for the admission of FDI into the EU. In cases of restrictions based on economic reasons, it would be more difficult to circumvent the unanimity requirement set out in Article 64(3) TFEU for measures that would represent a step backwards in the liberalization of FDI.
Beyond economics: security and public order
The Regulation highlights several factors to consider when FDI could affect security and public order. Of particular concern is the case where the investor is controlled “directly or indirectly by a foreign government,” which can be particularly worrying if it is an authoritarian power or a geostrategic competitor. Reference is also made to foreign control of critical infrastructures or dual-use technologies, which have proven to have serious drawbacks in recent times, particularly after the Russian aggression against Ukraine.
Furthermore, the protection of sensitive personal data and the guarantee of freedom and pluralism in the media are emphasized as weak points in Western democracies, which need to be defended to safeguard our political and social systems. The fight against orchestrated disinformation designed by the state apparatuses of aggressive powers, seeking to foster social conflict, extremism, and citizen disaffection towards democratic institutions, has become an inherent element of national defense strategies in the EU.
Despite the advances of the Regulation, deficiencies persist mainly due to the lack of harmonization of national screening legislations. In April 2025, the Trade Committee proposed a reform that seeks to expand the cases in which FDI can negatively affect security (including the security of military installations and public infrastructures, food security, media, and greenfield investments exceeding 250 million euros). Furthermore, it aimed to grant the Commission more decision-making power in cases of disagreement or inaction by a Member State, and to reduce the notification period for FDI screening. This proposal, approved in early May, must now be passed through the European Council and the European Parliament for its entry to take effect.
European champions for strategic autonomy?
To address the new global paradigm, in which European companies compete with transnational giants from the United States and China, the European Union is considering a significant change in its competition rules. There is a debate on how to foster the creation of “European champions” that can effectively compete in the global market.
On the one hand, France and Germany advocate for the transnational merger of large European companies, often with the support of states, to create corporations that can directly compete with Chinese and American multinationals. A key example of this stance was the attempted merger in 2019 between the rail-focused French company Alstom and the engineering-driven German company Siemens, which sought to create a global competitive powerhouse. However, the merger was vetoed by the European Commissioner for Competition, Margrethe Vestager.
This decision drew criticism from both governments, who argued that the competition from Chinese companies had not been taken into account and that European competition law needed to be amended. It had also been argued that only with help from the States and the Union can European companies compete with their top peers in many sectors.
A prominent example of this position is Airbus, which, taking the form of a European industrial complex fostered by French, British, Dutch and German governments, has managed to impede the monopoly of the American Boeing in the aeronautical sector.
On the other hand, the prevailing view in Brussels holds that such “European giants” should emerge through organic growth or through mergers and acquisitions of national companies within the internal market, regardless of the origin of the acquiring company. This view is based on the belief that the internal market, by fostering free competition without unfair practices or excessive state intervention, is the most effective mechanism for selecting which companies will become “European giants.”
Moreover, it has been proposed to integrate the internal market further and advance competence law to create optimal conditions for the development of globally competitive European companies, allowing state aid only when strictly necessary. Such precautions and limitations would ensure that the market chooses its leaders, rather than the Member States, through subsidies.
Global rules have changed. In a fragmented world, it may be a handicap for the EU not to protect its own strategic sectors through a stronger, more unified FDI screening mechanism and enhanced creation of “European champions” in these sectors. This is an issue that is especially serious when addressing sectors such as AI, telecommunications, and even the defense industry. The EU may ask itself how costly it can be to blindly adhere to its foundational economic values, which were conceived for a world that is no longer around, in terms of economic growth and even security. It is imperative, if real strategic autonomy is sought, to reopen the debate on how the founding treaties are adapted to a world that has significantly changed since Maastricht.
