The European Union remains the dominant economic force in its neighbourhood, but its influence is waning in key regions as China and Russia expand their presence, according to the newly released Geoeconomic Interconnectivity Index (GEOII). Developed by the Vienna Institute for International Economic Studies (wiiw), the Bertelsmann Stiftung, and the European Centre for International Political Economy (ECIPE), the index assesses the EU’s economic ties with neighbouring countries from 2010 to 2023, comparing them with those of the US, China and Russia.

The GEOII reveals that while the EU’s influence has grown in Ukraine and Moldova, its position in the Western Balkans — comprising Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia — is increasingly at risk from China, even while countries in the region aim for membership in the bloc. 

While the EU leads in trade, finance, and political interconnectivity, China has significantly expanded its footprint through strategic partnerships and infrastructure investments, particularly in Serbia and Montenegro. Russia's influence in the region has steadily declined, and the US plays a minimal economic role.

"The EU must view the Western Balkans through a geo-economic lens and make strategic geo-economic issues in this region a clear priority for policymakers in Brussels," said Philipp Lamprecht, trade economist and director at ECIPE, as quoted in a wiiw press release.

The GEOII makes clear the need for the EU to strategically leverage its economic relations to remain competitive with China, Russia and the US. The index measures interconnectivity in trade, finance, and economic policy between the EU and neighbouring countries, highlighting areas where the EU has the potential to strengthen its geoeconomic role and where it must be careful not to lose ground.

"Europe remains the most important partner in its neighbourhood," said Daniela Schwarzer, member of the Bertelsmann Stiftung executive board. "Since 2001, however, the EU has lost importance, relatively speaking, while China has systematically gained ground."

China rises, Russia declines 

Although the EU remains the strongest economic player in its neighbourhood, China is emerging as a formidable competitor. The index highlights China's growing influence in areas such as high-tech trade, infrastructure projects, and investment. In North Africa and the Middle East, the EU has lost ground to China in economic terms, particularly in the export of high-tech goods. Politically, however, the EU maintains close ties with these countries.

"The Middle East, North Africa, and Turkey are good examples of how, for the EU, stronger political ties do not necessarily translate into more intensive economic cooperation," said Lamprecht. "The opposite is true, even though the EU is still the most important trading and investment partner for these countries."

While China becomes more influential, Russia has experienced a significant loss of influence in the EU's eastern neighbourhood, particularly since its large-scale invasion of Ukraine in February 2022. The EU has overtaken Russia as the dominant player in Ukraine and Moldova, especially in trade, financial ties, and politics. Russia continues to maintain close relations with Belarus and Armenia.

"Brussels and the member states must redouble their efforts to successfully integrate Ukraine and Moldova, but they must not forget Georgia in the process, lest they cede the field to Russia again or invite China into the EU's direct sphere of influence," said Richard Grieveson, deputy director of wiiw and co-author of the study.

Turkey's strategic position

Relations with Turkey, a significant economic partner, remain challenging. The customs union of 1995 between Brussels and Ankara led to a sharp increase in trade between Turkey and the EU. However, geopolitical tensions and strong competition from China and Russia have undermined the EU's position, particularly in finance and high-tech exports. China has significantly increased its exports of high-tech products to Turkey and is investing more in new projects, such as a factory for electric cars built by Chinese manufacturer BYD. Russia has become the most important supplier of fossil fuels and raw materials and has expanded its defence cooperation with Turkey.

"It is therefore of strategic importance for the EU to modernise the customs union with Turkey and expand it to the areas of agriculture, services, and public procurement," said Grieveson. "This could unlock the full economic potential and keep competitors China and Russia at bay."