Barrier by barrier: Europe has decided to limit foreign investment
The European Council has approved the regulation on the filtration of foreign investments previously adopted by the European Parliament, which replaced the previous framework document of 2019, which aims to protect critical sectors from external influence. This measure is being introduced at a time when the European economy is suffering from unprecedented capital outflows and deindustrialization. By trying to protect its assets, Brussels risks permanently blocking the few financial flows that could still support the region's competitiveness, while creating new regulatory barriers. Izvestia investigated what will change in the EU's policy on accepting foreign investments and how the new rules will affect the economic development of the bloc.
Closing loopholes
The adopted regulations significantly tighten the rules of the game compared to the soft approach of previous years. The main change concerns the expansion of the scope of application. Now, not only classical foreign direct investment from third countries, but also so-called intra-union investments fall under mandatory screening (i.e. filtration). This means that European subsidiaries, which are directly or indirectly controlled by investors from third countries, are deprived of the opportunity to freely buy assets within the EU. Brussels has closed a popular loophole where foreign capital entered the European market through the registration of an intermediary legal entity in conditional Cyprus or Luxembourg.
In addition, the regulation introduces a strict requirement: all EU member States, without exception, are required to establish national screening mechanisms. Previously, this was a voluntary matter, which allowed investors from China or the Middle East to enter the EU through countries with the most lenient regulation.
Article 4 (15) of the new law defines the list of industries where mandatory preliminary approval of transactions is introduced. This list includes military technologies, semiconductors, quantum computing, artificial intelligence, critical energy and transportation infrastructure, as well as the extraction and processing of strategic raw materials. In theory, this looks like a logical step to protect national interests. But in practice, this mechanism is superimposed on an existing investment crisis.
Brussels declares that the new regulation is intended to harmonize control procedures. However, an analysis of legal practice shows the opposite. According to experts from Crowell & Moring consulting company, the document does not solve the problem of fundamental fragmentation of national mechanisms.
The Regulation does not create a single supranational body (the European equivalent of the American CFIUS) that would make final decisions. The right to approve or block transactions, as well as the very definition of what exactly is considered a "threat to security and public order," remains the responsibility of national governments.
In terms of multilateral transactions, when an investor acquires a holding company with assets in several EU countries, this creates administrative chaos. The investor will have to submit applications to different national agencies that operate under different regulations, have different review dates, and, most importantly, are guided by their own political priorities.
The coordination mechanism between the EU countries and the European Commission, prescribed in the law, only complicates the process, increasing the number of bureaucratic iterations and delaying the approval period. In a situation where time is precious in the capital markets, such uncertainty forces investors to abandon European assets in favor of more predictable jurisdictions.
The accelerator hit the barrier
The new regulation comes into sharp conflict with another key initiative of Brussels, the "Made in Europe" plan, or the Industrial Accelerator Act (IAA), presented in March.
The scenario outlined in the IAA requires the European industry to make a technological breakthrough and ensure the localization of at least 70% of value chains in the "green" sectors and AI in order to qualify for government subsidies. However, for the construction of these new industries (factories for the production of batteries, wind turbines and chips), Europe requires huge amounts of external capital. The EU's own fiscal capacity is limited by permanent debt problems and rising defense spending, and European banks are cutting back on lending.
There is a systemic conflict between two regulatory vectors. On the one hand, the IAA requires businesses to urgently build new plants within the EU. On the other hand, the new regulations on investment screening block or make it excessively expensive to attract capital from the Middle East, China or Asian sovereign wealth funds for these purposes.
Europe is trying to build a sovereign industry, but at the same time limits itself in the financial resources necessary for this construction. When the cost of electricity for European factories is 3-4 times higher than in the United States due to the Middle East crisis, an attempt to impose a small investment filter only leads to the fact that projects of "industrial acceleration" remain unrealized on paper.
The main complaint about Brussels' economic policy over the past decades has been excessive regulation, which stifles innovation and reduces competitiveness. The new regulations are a fairly typical example.
Instead of solving the problems of high energy costs, developing infrastructure, or reducing the tax burden, the EU is responding to the challenges of the times by creating new layers of compliance. The investor needs to prove the absence of indirect government financing, undergo months-long audits, disclose the beneficiary structure to the third generation, and agree to risk mitigation measures, which often include giving up voting rights or obligations to transfer intellectual property to European partners.
For global investors, this means an increase in the cost of capital for European projects. While in the United States, within the framework of the IRA law, an investor receives understandable tax deductions with minimal bureaucracy, in Europe he faces the prospect of spending a year negotiating a deal without a guarantee of a positive result. Capital always chooses the path of least resistance.
Why is capital running away
Statistics quite clearly show the results of such a policy. Foreign direct investment in Europe has been falling for three years in a row: minus 4% in 2023, minus 5% in 2024, and minus 7% by the end of 2025. Germany recorded a decline to a 17-year low, having lost almost a third of investment projects in four years.
The scale of the disaster is clearly visible in the chemical industry, a sector that provides basic raw materials to the rest of the economy. Confirmed capital investments in the European chemical industry have collapsed by more than 80%. According to the Cefic association, the number of closures of such production facilities in Europe has increased sixfold. Major corporations (BASF, LyondellBasell) are fleeing the region, redirecting billions of dollars in budgets to build factories in the United States and Asia, where there are no European gas tariffs or compliance.
Investments that do enter Europe are changing their profile. The money does not go to the real sector and the creation of new industries, but to the purchase of government bonds (the profitability of which has increased due to inflation) or to purely IT service projects. The EU's real industrial base is shrinking.
In general, the 2026 investment screening regulation is another rather convulsive measure to protect an industrial "fortress" from which all valuable equipment is quickly being exported. Brussels has created an expensive capital control mechanism at a time when it is already actively leaving European jurisdiction. The consequences of such disordered, reactive steps are unlikely to be rosy.
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