On 9 September, Mario Draghi published a report on ‘The Future of European Competitiveness’ highlighting the need for the EU to strengthen its Investment Screening Mechanism. The report was part of a broader effort to assess and strengthen the EU’s economic and strategic resilience in response to rising global competition and geopolitical challenges. Draghi’s report emphasized the EU’s vulnerability in key sectors such as technology, energy, and critical infrastructure. Draghi’s report underscores the importance of national security screening and the EU’s need for resilience with several key statements. At present, FDI screening is a national competence, with Member States only required to exchange notifications and information.

The report finds that “[t]his fragmentation prevents the EU from leveraging its collective power in FDI negotiations and complicates the formulation of a common FDI policy.” Indeed, EU foreign direct investment screening focuses on individual investments at the national level. But are European Governments ripe to shift competencies and “de-fragmentize”?

Just a few days before the report was published, the Spanish Council of Ministers blocked the acquisition of Spanish railway manufacturer Talgo S.A. by Hungarian competitor Ganz MaVag (partially owned by a Hungarian State fund), citing risks to national security and public order. Though the details remain undisclosed (FDI decisions are not published), speculation has linked the decision to several factors. One theory suggests that Talgo possesses advanced engineering solutions that may allow seamless transitions between Ukrainian and European rail tracks. Others focus on potential Hungarian ties to Russia, including commercial links between Hungary’s leading oil and gas company, Mol, to Russian oil companies. Whatever the reasoning, it seems clear that concerns over MaVags ties to the Hungarian government and Hungary’s proximity to Russia played a significant role.

The Hungarian government and Prime Minister Orban have of course been very outspoken when it comes to how the EU should interact with Russia. But where does this stop? In Germany,both the far-right Alternative for Germany (AfD) and the newly formed left-wing Bündnis Sahra Wagenknecht (BSW) are gaining popularity with pro-Russian positions. (Projections for the 2025 Bundestag election suggest that the AfD could capture 18% of the vote, while the BSW is projected to receive 8.1%.) Meanwhile, Austria’s far-right Freedom Party (FPÖ), with historical ties to the Kremlin, received the highest number of votes in recent national elections. In the next presidential election in France, voters could face a second-round choice between Marine Le Pen and Jean-Luc Mélenchon—both of whom have shown sympathies toward Russia in the past.

The Spanish decision in Talgo is not an isolated incident of an EU Government blocking the acquisition by an EU company. In 2023, Italy blocked a bid by the French aerospace and defense company Safran to purchase Microtecnica, a company that produces components for the Eurofighter jets. Italy has laws that allow for the review of intra-EU transactions. Also in France, there are many instances where EU purchasers had to accept commitments. In Romania, all purchases in sensitive sectors (broadly defined) are reviewed, not only from non-EU buyers. Germany also reviews EU investments in military companies.

A centralization of FDI powers at the European Commission would require neutrality on intra-EU acquisitions. The precedent above suggests that Member States generally want to keep the last word on FDI screening. And indeed, efforts to harmonize the EU’s draft FDI Regulation [read more] has faced resistance and is unlikely to enter into force soon. The current discussions on a minimum list of screening industries or the synchronizing national filings have sparked intense debate, yet they are far away from Draghi’s vision of a European approach on substance.

The European Court of Justice (ECJ) is also unlikely to intervene. [insert link to the previous blog] A notable example is the case involving Xella Magyarország (Xella), a Hungarian company wholly owned by a German entity, itself owned by a Luxembourg-based company, with ultimate control resting with a parent company in Bermuda, linked to an Irish national. The dispute arose with the Hungarian Minister for Innovation and Technology over the acquisition of 100% of the shares in Janes és Társa, a company specializing in the extraction of gravel, sand, and clay. The ECJ held that Xella, as an EU company, was entitled to the freedom of establishment. However, the court noted that acquisitions in sectors, such as petroleum, telecommunications, and energy, might raise public security concerns, which could justify restrictions on fundamental freedoms. In the context of 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 have to be treated differently.

Mr. Draghi’s report will undoubtedly influence debates about the EU’s resilience, but whether it will lead to the fundamental shift required for the report’s recommendations on FDI control to be implemented remains to be seen. While a shift of competence seems unlikely in the mid-term, other points raised could be picked up sooner. Draghi’s report for instance identifies a gap when it comes to greenfield investments that are currently excluded from FDI screening. He highlights the asymmetries arising from small Member States negotiating with large foreign investors that could lead to unwelcome concessions being extracted by foreign countries. A further point that the report supports is outbound investment control to retain essential IPR and know-how.

For companies, identifying geopolitical risks is now 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 one step towards more certainty. Much to be done, and the only prediction that one can comfortably make is that FDI control will not become boring.