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The EU should draw up legislation to regulate sovereign wealth funds (SWFs) and other investment vehicles from "illiberal" emerging economies and prevent a "slippery slope of protectionism" within Europe at the same time, an influential economic thinktank has urged.
The call from Bruegel comes as British banks, including Barclays and Lloyds TSB, turn to SWFs for capital to avoid drawing on the Treasury's bail-out fund or to repay state preference shares as soon as possible. Barclays recently accepted £7.3bn from Abu Dhabi and Qatar.
Senior economists at Bruegel calculate that SWFs are generally worth $3tn (£2tn)but the total stock of sovereign investments from emerging countries, including central banks, is three times higher. "Illiberal" or authoritarian countries now control more than 15% of world gross domestic product, they point out.
Bruegel's experts, Lars-Hendrik Röller, a former chief competition economist at the European commission, and Nicolas Véron, say the EU should adopt a European version of the committee on foreign investments in the US, which has proved relatively liberal despite protectionist pressures from Congress.
Protectionist tendencies are already obvious in the EU, too, and concerns about foreign investment could reinforce these. Peter Mandelson, the business secretary, said on a visit to the Gulf this month: "We should not be pulling up the shutters and discouraging investments in Europe."
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