Geoeconomics and financial statecraft in the European Union: the case of critical market infrastructures

The European Union is an important player in global finance. We examine how and why it deploys 'financial statecraft', defined as the intentional use of financial capabilities for the purpose of achieving geoeconomic goals. The European Union has long deployed its market size and regulatory capacity in finance to support the competitiveness of the European Union financial industry and to safeguard financial stability primarily through multilateral institutions. Over the past decade, however, the European Union has increasingly engaged in unilateral and defensive forms of financial statecraft to advance more explicitly geoeconomic goals. We illustrate our argument by analysing the use of financial statecraft in two areas of critical market infrastructure: central counterparties for clearing securities and derivatives and the provision of financial services by large digital platforms or 'Bigtechs'. In both cases, we argue that the European Union's geoeconomic turn has been motivated by a concern to reduce its dependence on third countries, and companies based in those jurisdictions, for the provision of critical market infrastructure. Yet, statecraft has also been deployed instrumentally to defend the interests of existing European Union financial institutions and financial centres, and to support the development of European Union companies and sectors capable of challenging (predominantly US-based) rivals.