Screening the Future: Building a Smarter European Economic Security Framework

Author: Szabolcs Nagy (Trade policy and investment diplomat, Permanent Representation of Hungary to the European Union)

A New Screening Framework

On 8 June 2026, the Council adopted the revised EU Foreign Direct Investment (FDI) Screening Regulation. Following signature on 16 June and publication in the Official Journal shortly thereafter, it will enter into force 20 days after publication. Member States will have 18 months to reflect the new harmonisation requirements with full transposition expected by the end of January 2028.

The revision marks a significant reform of the EU investment screening framework since the original regulation entered into force in 2019. The political agreement reached on 11 December 2025 concluded nearly two years of intensive negotiations that began with the European Commission’s proposal in January 2024. The new framework introduces several important innovations: mandatory screening mechanisms in all Member States, screening of intra-EU investments involving foreign control, a structured two-phase review process, a common minimum scope for screening, harmonised deadlines, improved cooperation and a European database. The streamlined framework aims to strengthen the Member States’ ability to identify, assess and address security risks while preserving Europe’s openness to investment.

From European Openness to European Vigilance

The revised regulation is a carefully calibrated compromise. It strengthens Europe’s economic security while preserving openness to investment and respecting Member States’ responsibility for national security assessments. The most important achievement of the negotiations was not simply the introduction of new common set of rules. It was the recognition that effectiveness matters as much as harmonization ambition. A decade ago, many Member States were still debating whether investment screening mechanisms were necessary at all. The original Regulation was adopted at a time when concerns were growing over acquisitions of strategic European assets, critical technologies and infrastructure by foreign entities whose objectives might not be aligned with European interests. Since the framework became fully operational in 2020, geopolitical realities have evolved dramatically. The COVID-19 pandemic exposed vulnerabilities in global supply chains. Russia’s invasion of Ukraine highlighted the risks associated with excessive strategic dependencies. Intensifying technological competition has increased concerns regarding semiconductors, artificial intelligence, quantum technologies, critical raw materials, biotechnology and digital infrastructure. At the same time, governments around the world have increasingly integrated economic and trade instruments into broader geopolitical strategies.

These developments have fundamentally altered how policymakers think about security. Economic security is no longer viewed solely through the traditional lens of military capabilities or critical infrastructure protection. It includes questions about technological leadership, supply-chain resilience, control of trade routes and bottlenecks, access to critical inputs and the ability to withstand economic coercion. The EU’s Economic Security Strategy explicitly identifies vulnerabilities relating to supply chains, critical infrastructure, technological leakage and economic dependencies as key risks requiring coordinated action. In this context, there is broad agreement that screening mechanisms are needed.

The Most Important Reform: Making Screening Predictable

Public discussions about investment screening often focus on prohibitions and restrictions. In reality, the most important aspect of the revised regulation may be something far less dramatic: predictability. The existing framework had produced valuable experience, yet some shortcomings had become apparent. Not all Member States maintained national screening systems. Procedures differed significantly across jurisdictions. Timelines varied considerably. Investors often faced uncertainty regarding whether transactions would be screened and how long reviews would take. The revised regulation seeks to address precisely these weaknesses. The real debate concerned how far harmonisation should go, how much cooperation is appropriate, and whether investment screening should remain a national security instrument or gradually evolve into an industrial policy tool. Throughout the negotiations, the Council sought to strike a balance between these competing visions. The objective was clear: create a more coherent and effective system without imposing unnecessary burdens on investors or national administrations. Most investments are beneficial and most investors are legitimate commercial actors, therefore the majority of screened transactions ultimately raise no significant security concerns and proceed without conditions. The challenge therefore was not to create a system that screens more investments, but one that identifies risky investments more efficiently while allowing legitimate investment to proceed quickly and efficiently.

This principle is reflected in the new two-phase review structure. Most importantly for investors, the first phase of review will allow the overwhelming majority of cases to be cleared within a maximum of 45 days, an upgrade [Article 4 2.(a)] proposed by the Hungarian Presidency building upon the Commission's proposal. Business representatives highlighted those fragmented national procedures often encourage precautionary over-notification. Authorities become overwhelmed by low-risk cases, while investors face unnecessary costs and uncertainty. The revised regulation seeks to address precisely this problem by introducing greater procedural alignment and clearer risk indicators. If the notification filters and assessment criteria function as intended, only genuinely sensitive cases should trigger extensive scrutiny and proceed to in-depth investigation. Non-problematic investments should be authorised during the first review phase within a maximum of 45 days. For investors, this is potentially one of the most important practical benefits of the reform. This matters because legal certainty is not merely a business concern, it is also a strategic interest for Europe. Investment remains essential for innovation, growth, competitiveness and technological development. A screening framework that generates excessive notifications, unpredictable procedures or prolonged delays ultimately weakens Europe’s attractiveness as an investment destination.

National Security Must Remain National

There is no one-size-fits-all approach to national security. Different Member States face different vulnerabilities, maintain different critical infrastructures and assess risks through different strategic lenses. It would be unrealistic to expect complete uniformity across Europe. The revised regulation acknowledges this reality. It introduces minimum harmonisation rather than full harmonisation. Member States retained the right to screen additional sectors, define national security priorities and ultimately decide whether a transaction should be approved, conditioned or prohibited. Cooperation will become more structured, but the final decision remains in national capitals. This was a central principle of the Council position and one of the most important principles guiding the negotiations. For this reason, the principle of “due consideration” was retained when Member States assess comments and opinions from other participants in the cooperation mechanism. The distinction may appear technical, but it matters. “Due consideration” reinforces cooperation while preserving discretion. “Utmost consideration” could have shifted the institutional balance toward de facto centralisation.

The same logic applies to the debate over the role of the European Commission. Perhaps the most difficult political question throughout the negotiations concerned institutional balance. How much authority should remain with Member States, and how much should be transferred to the European level. During the negotiations, the European Parliament advocated for a significant expansion of the Commission’s investigative and decision-making powers. Some proposals would have moved the system closer to a supranational review mechanism.

The Council took a different position: investment screening touches directly upon national security, an area where Member States retain primary competence under the EU Treaties. While the Commission plays an indispensable coordinating role, screening decisions must remain national decisions. The final compromise reflects this understanding, in which the Commission remains an essential coordinator. Its expertise, analytical capacity and ability to facilitate information exchange or offer guidelines are valuable assets. The Commission’s role in information gathering and coordination has therefore been strengthened. This outcome is beneficial for investors, Member States and the Commission itself because it preserves the legitimacy and practical workability of the system.

The final decision remains where it belongs, with national authorities. For investors, this preserves clarity regarding who ultimately makes decisions, for Member States it preserves sovereignty and for the Commission itself, it avoids placing the institution in a politically difficult position where it could be expected to assume direct responsibility for national security assessments. This outcome is particularly important because it preserves democratic accountability. Decisions that affect national security remain anchored in national responsibility.

Economic Security Without Economic Nationalism

The broader question is, however, what this reform means for Europe’s strategic autonomy agenda. The answer requires some nuance. In recent years, the EU has increasingly focused on economic security. Supply chain disruptions, geopolitical tensions, technological competition and strategic dependencies have demonstrated that economic openness cannot be taken for granted. Policymakers are paying greater attention to vulnerabilities linked to critical technologies, critical raw materials, energy infrastructure and advanced manufacturing capabilities.

The concept of strategic autonomy has evolved significantly over the past decade. What began primarily as a discussion about defence and foreign policy now encompasses technology, energy, industrial resilience and critical supply chains. Yet strategic autonomy should not be confused with economic isolation. Europe’s prosperity has been built on openness, and foreign investment has contributed enormously to economic growth, innovation, productivity and employment across the Union. The objective is therefore not to reduce investment flows but to manage risks more intelligently. The revised FDI framework reflects this philosophy.

The revised framework is part of this wider evolving economic security strategy. Yet it is important not to misunderstand the role of investment screening. It is not designed to protect national champions, it is not intended to shield industries from competition, and it is not a mechanism for directing capital allocation across the economy. Its purpose remains rooted in national security. Nevertheless, there is an important connection between investment screening and the reduction of strategic dependencies. By its very nature, the assessment of FDI transactions lies at the intersection of economic and political considerations, requiring authorities to balance market interest with national security concerns. Consequently, a degree of confidentiality often surrounds the decision making process reflecting the sensitivity of the strategic assets and interest involved.

FDI screening cannot solve every economic security challenge. It is one instrument among many. Export controls, sanctions, competition policy, procurement rules and industrial policies all serve different functions. Attempting to transform investment screening into a catch-all economic governance tool would be a mistake. If governments begin using national security arguments to pursue economic nationalism, protect domestic champions or manage purely commercial outcomes, the legitimacy of the system could be undermined. The revised regulation remains focused on genuine security and public order risks and that discipline will be essential for its long-term credibility.

Having said that, investment screening can contribute indirectly to reducing strategic dependencies. By scrutinising acquisitions involving critical technologies, infrastructure and sensitive supply chains, authorities can limit vulnerabilities that might otherwise emerge through foreign control of strategically important assets. Wider economic security discussions increasingly highlight the importance of reducing excessive dependencies in sectors such as semiconductors, critical raw materials, artificial intelligence and digital infrastructure. The revised regulation supports these objectives with a common minimum scope for screening through a national security lens rather than through industrial policy intervention. If a foreign acquisition would transfer control over critical infrastructure, sensitive technologies or strategically important capabilities to actors that may pose security concerns, authorities can intervene before the dependency emerges. This is fundamentally different from industrial policy. The objective is not to engineer economic outcomes; it is to prevent security vulnerabilities. That distinction must remain clear if the system is to retain legitimacy. Success, however, will ultimately depend less on the legal text than on its implementation.

The New Frontier: Intra-EU Investments

Another important innovation is the extension of screening intra-EU investments where the acquiring entity is ultimately owned or controlled by investors from third countries. This change reflects the reality of modern corporate structures. Increasingly, investments are channelled through subsidiaries established within the European Union. Under the previous framework, such structures could sometimes create uncertainty as to whether transactions fell within the scope of screening mechanisms. The revised rules acknowledge that security risks arise from ultimate ownership and control rather than from the immediate legal form of a transaction.

At the same time, this expansion must be applied carefully. Authorities need to respect the EU case law on restriction of the free movement of capital justified by public policy and public security reasons and at the same time distinguish the international standards of security and public order to prohibit or restrict legitimate international investment structures and arrangements. Overly broad interpretation could generate unnecessary administrative burdens and create uncertainty for investors operating within the Single Market. Again, proportionality will be critical.

Cooperation as a Strategic Asset: The Symphony of Sovereign States, Conducted by Trust

The revised framework also reflects a broader lesson from recent years, namely that security challenges are not limited to national borders. A transaction reviewed in one Member State may affect critical infrastructure in another. A technological acquisition in one jurisdiction may have implications for security across the Union. The enhanced cooperation mechanism therefore represents one of the regulation’s greatest strengths. Harmonised procedures will facilitate cooperation, and the structured exchanges could improve collective awareness of emerging risks. The properly balanced feedback mechanism between Member States and the Commission on the decision taken, gives enough clarity on the entire lifecycle of the screening process, while avoiding the possibility of decision shaping. Yet, successful cooperation depends on more than legal provisions. It depends on trust. The effectiveness of the system will ultimately be determined by how Member States continue to engage in good faith, share relevant information and respect one another’s legitimate security concerns. No legal text can substitute for that political commitment.

Looking Ahead

The revised Regulation arrives at a pivotal moment for Europe. The Union faces an increasingly complex security environment characterised by geopolitical competition, technological rivalry and growing concerns over economic resilience. At the same time, Europe continues to depend on investment, innovation and international economic engagement for its prosperity.

Balancing these objectives is not easy. Too little screening would expose Europe to genuine vulnerabilities, while too much screening could undermine investment and competitiveness. If Member States apply the new rules carefully, focus on genuinely high-risk transactions and continue to cooperate in good faith, the framework can deliver greater predictability while strengthening Europe’s resilience. If, by contrast, the system becomes over-politicised, overloaded with low-risk notifications or used for purposes beyond its intended scope, both investors and authorities will suffer.

Five years from now, the best measure of success will be simple:

• Europe should remain an attractive destination for investment;
• The overwhelming majority of transactions should continue to be approved quickly;
• Cooperation between Member States should be based on trust, transparency and mutual respect; And,
• Screening should remain a last-resort instrument, deployed only when legitimate security concerns arise. That was the guiding principle during the negotiations, and the revised regulation represents a carefully negotiated attempt to navigate between these extremes.

The revised Regulation is a pragmatic evolution of Europe’s economic security architecture. It strengthens the Union’s ability to identify and address genuine security risks while preserving openness, competitiveness and national responsibility. In an era of increasing geopolitical uncertainty, that balance may prove to be its greatest achievement. If implemented wisely, the revised regulation will not become a symbol of European protectionism. Instead, it will become something far more valuable: a demonstration that security and openness can coexist. In a world where economic power increasingly intersects with geopolitical influence, that may be one of the most important lessons Europe can offer while ensuring that Europe remains one of the world’s most attractive destinations for foreign investment.