The geopolitical order keeps shifting – politically and economically – as the US administration pursues its mercantilist-transactional approach to international relations and weaponises economic and financial instruments. This, and the distancing of the US from unambiguous support for NATO, which has long guaranteed the alliance, create an urgent need for Europe to strengthen its strategic autonomy (e.g. Pisani-Ferry et al. 2024, Garicano 2025, European Commission 2025c).

The reliance of the EU on China for critical goods (e.g. Buysse and Essers 2023, Faubert et al. 2024) has long occulted its dependence on the US for several critical services, such as software, cloud services, cybersecurity, and retail payments.
By way of example, Mastercard and Visa account for two-thirds of card payments in the euro area, and only five countries in the euro area have a domestic card scheme. Services produced in the US are therefore core to the policy debate on strategic autonomy.

In addition, services are also the market where most gains can be made by reducing the still high barriers to trade in the European Single Market (European Commission 2025a, Rotunno et al. 2025, Hoekman and Shepherd, 2025). Paradoxically, the EU is a global exporting power in services, not only in goods (Eurostat 2024), but trade in services is no higher among EU member states than between the EU and the rest of the world (European Commission 2025a). Its dependence on foreign providers is to a significant extent home-made due to the fragmentation of the European internal market. An undesired consequence is that Europeans rely on US giant firms with monopoly power, which creates both rents and operational vulnerabilities.

In this column, we focus on economic security issues raised by trade in services.

How to assess service dependencies

Compared to trade in goods, collecting useful data to detect dependencies on services runs into several hurdles, due to intangibility and complexity of what is traded, multiple delivery modes, limits to information collection, and intra-firm and digital trade. Traditional measures, such as market concentration and scarcity, are inherently difficult to apply to services.

One promising avenue exploits the concept of ‘choke points’ (e.g. Chatham House 2017). Choke points identify possible bottlenecks and threat points to a supply chain. For financial services, dependence on and resilience of the sector are distinct concepts. Regular stress-testing provides information on the sector’s resilience. What dependence captures is the impact of a disruption on some key financial services along the value chains.

Other services are also lifelines for the economy and may be equally crucial, such as public transport navigation systems and utilities. A systematic mapping of how the disruption of services provided by non-EU ‘hyperscalers’ (e.g. Amazon, Microsoft) affects economic activity across sectors would clearly be a significant step forward.

How to reduce service dependencies

Generally, industrial policies may be warranted when there are market failures, including first-mover advantages, network externalities, and economies of scale (e.g. Rodrik 2004, Aghion et al. 2015). These features apply to several services, as they do to the production of several goods.

However, inefficiencies and dependencies may be byproducts of insufficient market integration. Some services markets have explicitly been excluded from the Single Market, mostly because they are subject to sector-specific regulation or public-interest considerations. Some of them are crucially constrained by a physical infrastructure – for example, train transport and utilities. Some of the barriers are regulatory, such as those affecting IT-related professional services and financial services to various degrees. Moreover, cross-border services and competition may be constrained by different rules in consumer protection, service standards, or even labour law.

Inadequacy of financial support is a stumbling block for technological upgrade and scaling up of European IT services. Europe lacks a sufficiently deep and liquid capital markets creating the conditions for a high level of market capitalisation, and equity finance, also due to the dominance of pay-as-you-go pension systems. The success of a savings and investment union (SIU) will be key to redirecting resources to productive investment, on top of creating the conditions for a strong, EU-scaled financial services industry. Building up an effective SIU will require a wide range of actions, at both national and supranational levels (Villeroy de Galhau 2025).

In 2025, the European Commission adopted a series of packages to translate the savings and investment union into concrete measures. It has proposed, among other things, to revive securitisation to support financing of small and medium-sized companies and the strengthening of funded pension systems. This would help market capitalisation and especially equity financing of innovative firms. In December 2025, the Commission adopted the market integration package designed to remove barriers and unlock the full potential of the EU Single Market for financial services. This included proposals for more efficient and integrated supervision and it launched a consultation on the introduction of a ‘28th regime’ that could reduce legal barriers to cross-border equity funding. Other proposals on the savings and investment union will be announced by early 2026.

The fragmented market of European financial services and infrastructure favours non-EU companies

According to the European Commission (2025b), Europe has over 300 stock exchanges, 14 clearing platforms, and 28 central securities depositories. In the US, there are five main clearing platforms and one central securities depository. This multiplicity of financial markets and financial market infrastructures in Europe causes fragmentation of savings and financial market investments, higher costs for issuers, less efficient allocation of excess savings, reduced competitiveness of European financial institutions, and strong dependency for a couple of critical services vis-à-vis non-European financial market infrastructures. This particularly concerns central clearing of euro interest rate derivatives (swaps and short-term futures), where UK central counterparties maintain a quasi-global monopoly.

While Europe has a high number of large banks, few of them have full European reach. This owes to the fact that regulations have a pure national perspective on systemic relevance and, in some cases, keep ringfencing national banking systems. Some components of an efficient European backstop are also missing. This lack of genuine European reach of large European banks might also explain why US banks have a competitive edge in investment banking activities. The market share of US banks in European investment banking is much larger than that of euro area banks (close to 60% versus 30%, respectively). In the retail payments sphere, American card schemes are also dominant (ECB 2025).
In addition to sovereignty and resilience concerns, this dependency comes with an immediate cost for the real economy as merchant fees suffer an upward trend (European Commission 2024). The development of the digital euro by the Eurosystem, replicating banknotes in the digital sphere, should offer an alternative for European retail payments.

Towards an industrial policy for services?

Could a common industrial policy play a role once the frictions discussed above are addressed? There are different views in the academic literature, ranging from advocating a mission-driven ‘moonshot’ approach in certain areas, to conventionally more prudent approaches (Caffarra and Lane 2024). Still, efficient industrial policy should avoid falling back into old traps. State aid should not be used to build up national champions, and it is essential to conduct industrial policy within the guard rails of a European competition regime. The enforcement of the Digital Markets Act will contribute to reducing dependencies in services through the traditional tools of competition policies.

Beyond this, as the 2024 Draghi Report forcefully argued, we need more policy coordination. Unilateral industrial policies, according to an IMF study (Hodge et al. 2024), can create spillover and spill-back effects, which outweigh the benefits, and do not generate the necessary scale. Public procurement policies should enforce an open process and involve sunset clauses to avoid creating rents and allow competitive European players to arise. In the specific case of retail payments, incumbents are protected by powerful network effects, limiting the ability of genuine European solutions such as Wero or EuroPA to expand. Again, the digital euro will have the capacity to overcome these network effects and impulse more competition. 

A difficult, and much more contested area is the question of to what extent industrial policy for services should be geared towards geopolitical and geo-economic objectives and become an instrument of foreign economic policy. The available economic security instruments regarding services – the anti-coercion instrument (ACI), foreign investment screening, data protection, sanctions – are fewer in number than those for goods and little used.
The anti-coercion instrument, for instance, is a powerful trade tool that allows the EU to respond to economic coercion by third countries through proportionate countermeasures. However, it has primarily been seen as a deterrent device so far, as the high level of dependencies largely prevents the EU from relying on economic security instruments, for fear of losing access to non-substitutable services. Sophisticated instruments like Instex,
to avoid extraterritorial effects of US sanctions on Iran, have failed. The EU is also able to place restrictions on foreign direct investment (FDI) originating from a third country, effectively limiting its ability to acquire or establish service-providing entities in the EU market.

In a new communication of December 2025 (European Commission 2025d), the Commission signalled a shift towards a more proactive approach calling for systematic risk assessments, tighter screening of foreign investments, diversification of critical service providers, and coordination among member states via an Economic Security Network. The communication acknowledges the limited practical use of coercion and advocates for deterrence. The limits on the use of coercive instruments in international rules pose a political dilemma for Europe, which positions itself as a defender of a rules-based trading system.

To conclude, European dependencies on services have multiple implications, ranging from rent extraction to security concerns. Europe in fact has multiple ways to address them, provided existing tools are actively employed and a significant step is taken towards internal market integration, which includes both the savings and investment union and the digital euro. Coordination of public procurement could also help reduce existing and future dependencies  (for example, for AI systems), but would need to be carefully designed so as to steer competition among European providers.

Authors’ note: This column reflects discussions held at the Banque de France/CEPR EEP RPN workshop held on 10 June 2025 in Paris. The authors would like to thank participants for their active contribution to the debate. Views expressed here are nonetheless those of the authors and should neither be attributed to individual participants nor to the Banque de France or the ESM.

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