We spoke with Dr Mojmir Mrak, Jean Monnet Chair Professor of International Finance and EU Economic Policies at the Faculty of Economics, University of Ljubljana, about the new geopolitical relationships between the United States, China, the EU and the BRICS group; the EU's role in a multipolar world; the prospects for Western Balkan countries in their rapprochement with the EU; how and in which sectors Slovenian companies can capitalise on the changing geopolitical landscape; and what kind of geopolitical and business year 2026 is likely to be - calm or turbulent.
How will new relationships between the United States, China, the EU and the BRICS group change the business models of companies from Slovenia and the Western Balkans in the coming years - particularly in terms of production locations, supply chains and access to raw materials?
The transformation of the world from a more or less unipolar to a multipolar structure, combined with major technological shifts and changes in various aspects of globalisation, is having a profound impact on business operations across the globe, including in our region. Global supply chains that were built up over decades in conditions where geopolitical risks played a relatively minor role are now increasingly exposed to geopolitical factors. This naturally reduces supply chain stability and leads ever more frequently to disruptions. Whereas economic flows in recent decades - defined primarily by globalisation - were shaped mainly by economic factors, this is no longer the case. The economy is increasingly becoming an instrument for achieving strategic objectives, which has a strong impact not only on supply chains but on business models as a whole.
Due to geopolitical tensions between the US and China, and the associated risks in Asia, there is a growing trend towards shortening supply chains and relocating production closer to home markets. Terms such as reshoring, nearshoring and friendshoring, which were virtually unknown in the economic vocabulary just a decade ago, are now being rapidly incorporated into corporate strategies. These shifts in both production and supply chains towards accelerated regionalisation represent an opportunity for Slovenia and the Western Balkan countries, provided that the EU as a whole manages to adapt to the new global reality. In my view, Slovenia, as a potential nearshoring destination, has certain comparative advantages, particularly in high value-added sectors (pharmaceuticals, electronics, automotive industry) and in logistics. However, it will only be able to capitalise on these advantages through technological upgrading and digitalisation.
The EU is losing competitiveness to the US and China, while also facing internal blockages in decision-making. What does this mean for exporters from Slovenia and the region who rely on the single market and European funding for the green and digital transition?
The EU is facing at least two major groups of challenges. One is relatively new and relates to security; the other - the loss of international competitiveness - has been present for quite some time. We need only recall the Lisbon Strategy adopted by the European Council back in 2000. Even then, it was clearly recognised that the EU’s economic model required substantial changes, yet relatively little of what was agreed has actually been implemented. In the years following the financial crisis, the EU focused primarily on restoring economic growth, followed by a period centred on the green transition. Accelerating geopolitical changes have once again brought the issue of lost competitiveness to the top of the EU’s political agenda.
This problem has been analysed in detail in reports prepared by two former Italian Prime Ministers, Enrico Letta and Mario Draghi. Based on these analyses, a relatively high level of consensus has quickly emerged within the EU on what needs to be done to strengthen competitiveness, but there has been no serious agreement on how to do it. Two key problems stand out, both of a distinctly political nature: financing and, perhaps even more importantly, decision-making. In my view, decision-making on EU competitiveness should be centralised. Instead of the numerous Council configurations currently deciding on different aspects of competitiveness, this competence should be consolidated within a single Council formation responsible for all competitiveness-related issues. The existing silo-based decision-making system is inefficient in both substance and timing, and the failure to take decisions effectively amounts to a conscious choice to reduce the EU’s role in the global economy.
For the Slovenian economy, which primarily sells into the EU single market, this bodes ill. Slovenia, as a small economy, is deeply embedded in the European single market. If that market functions well, it benefits Slovenia - and vice versa. If the EU fails to adapt its decision-making processes to the new global reality, it is highly likely that, over time, problems in the functioning of the single market will intensify, with all the negative consequences this would have for Slovenia’s economy and prosperity. It is therefore in Slovenia’s vital interest that the EU not only survives the current turbulent period, but emerges from it institutionally stronger. This will require political courage from European leaders. I hope they have it.
China is investing in European ports, infrastructure and critical raw materials, while the US is tightening its trade policy. How should companies from Slovenia and the region position themselves strategically between these two blocs to avoid becoming “collateral damage” in trade and financial disputes?
One could say that the world is moving towards a kind of bifurcation. On one side, there is the United States, which, despite numerous economic and political measures adopted during Trump 2 that were in practice directed against traditional allies, remains the undisputed leader of the West. On the other side is China, positioning itself as the leader of the East, which currently includes Russia, Iran and more than 80 developing countries. There is also a bloc of still somewhat undefined countries, which I would personally include India and a few others. This geopolitical bifurcation presents growing challenges for many countries, including the EU, in terms of how to position themselves in the new international reality and how to avoid becoming “collateral damage” in trade and financial conflicts between major players.
As already stated, Slovenia should strive, as a state, to ensure that the EU remains at the table of key global players. This means advocating for international trade flows that continue to be based on the fundamental principles of multilateralism, as well as for the most efficient possible securing of energy sources and strategic raw materials. At the national level, Slovenia should pursue diversification of markets and supplier chains, effective integration of Slovenian companies into European strategic projects - which will undoubtedly receive substantial EU funding - and technological resilience supported by investments in research, development and, in particular, artificial intelligence. It would also be sensible for Slovenia to act pragmatically and to exploit, in a considered manner, the opportunities available to small players.
EU enlargement to the Western Balkans is recognised as a geostrategic necessity, yet conflicts and open issues persist. What realistic timelines and scenarios do you see for companies in the region, and when and under what conditions will they be able to rely on full integration and the full benefits of the single European market?
After two decades of stagnation, enlargement to the Western Balkans has once again become a geopolitical priority for the EU. However, it must be stated clearly that this status has been achieved in the context of the outbreak of war on another part of the EU’s periphery - in Ukraine.
In the current circumstances, I believe that two fundamentally different enlargement scenarios can be envisaged in the coming years. The first is what I call the “actual readiness” scenario, under which the EU would expand by 2030 to include only one or two small Western Balkan states - primarily Montenegro and possibly Albania - due to their relatively advanced preparedness for membership. This scenario would primarily serve to demonstrate that the enlargement process is once again genuinely alive. The second scenario, which I call “strongly geopolitical”, would arise in the context of an agreement to end the war in Ukraine, under which the EU would effectively be pushed to grant Ukraine full membership as part of a peace settlement. This more geopolitically driven scenario would likely also include the accession of the aforementioned Western Balkan countries. In this case, Ukraine’s actual preparedness for membership would have little influence on the decision.
Unlike previous enlargements, where candidate countries eventually became full members in one step, there is now increasing discussion of phased accession, both in economic-financial terms and in decision-making. Under one variant of phased accession, new members would gain full access to the single European market and increased access to EU funds, while their veto rights in decision-making could be deferred for a certain period.
Nearshoring is strengthening within the broader German-Italian industrial base. How can Slovenian companies and regional groups - such as those in banking, logistics and energy - capitalise on this trend and integrate suppliers from Serbia, Bosnia and Herzegovina, North Macedonia and Montenegro?
Germany and northern Italy are the most important industrial base in the EU. In the context of shortening supply chains and relocating production closer to the EU, this base presents significant opportunities for Slovenian companies. In the context of nearshoring, Slovenian companies possess several potential comparative advantages. Due to their geographical proximity, solid technological capabilities and traditional links, they can strengthen their position as key suppliers to clients in the German-Italian industrial base and beyond. Moreover, Slovenian companies can act as a bridge between these clients and suppliers from the Western Balkans, particularly in sectors such as logistics and energy.
The war in Ukraine and the energy crisis are accelerating the transition to renewable and nuclear energy, while driving up energy and capital costs. What is the right strategy for energy-intensive and export-oriented companies: industrial modernisation, development of new green sectors, or relocation of part of production outside Europe?
It is true that, within the EU, companies under the greatest pressure from declining international competitiveness are those that are highly export-oriented and/or energy-intensive. A clear example is the chemical industry, which is the fourth-largest manufacturing sector, with its products incorporated into 96% of all manufactured goods. It is therefore a strategically crucial sector. However, it faces a range of specific challenges - from high energy and input costs, geopolitical tensions and reduced demand. As competitiveness has declined, the EU’s share of global chemical production has halved since 2003, leading to lower capacity utilisation, reduced profitability and the closure of 20 major production sites, with the loss of 10,000-20,000 jobs.
The strategic framework for companies facing high energy prices should include measures in at least two areas. The first is modernisation of production through investment in energy-efficient technologies, digitalisation and artificial intelligence. The second is the development of new technologies that enable revenue diversification and reduced dependence on energy-intensive processes.
The European Commission’s plan to 2029 envisages deep reforms to strengthen competitiveness, sustainable prosperity and social cohesion, while also building a stronger defence union, protecting democracy and increasing the EU’s global influence. How do you assess this plan - as a realistic basis for a strategic breakthrough or as a political vision without sufficient financial and institutional backing?
As mentioned earlier, the EU faces two major challenges: defence and competitiveness. Successfully addressing them will require changes in decision-making. The second political issue is financing. Here, the EU faces conceptual inconsistency. On the one hand, fiscal rules were reintroduced in mid-2024, requiring fiscal consolidation by member states; on the other, there are estimates calling for substantial increases in investment to strengthen defence and competitiveness. Doing both simultaneously will not be possible.
It is already evident that fiscal rules will be applied more flexibly in light of heightened geopolitical risks, as confirmed by the agreement that certain defence investments will be excluded from fiscal calculations. The EU has significant potential to increase investment at EU level, either through the EU budget or through new financial arrangements similar to the NextGenerationEU instrument adopted in response to the pandemic. However, initial reactions from member states to the proposed 2028-2034 EU budget suggest there is currently little political appetite to increase overall EU-level funding. This may change in the near future, but it would likely require a strong external shock. Historically, the EU has only taken politically difficult decisions when truly under pressure.
The US is demanding higher European defence spending. Where do you see the greatest opportunities and risks for Slovenian and regional companies in projects related to energy, transport, defence and digital infrastructure?
Increased defence spending will partly be allocated to strictly military purposes, as currently seen in additional equipment procurement for national armed forces and support for Ukraine. Another part will be directed towards so-called dual-use investments, particularly in energy, transport, logistics, healthcare and digital infrastructure. For Slovenian companies, these investments - partly financed by EU funds - could represent significant business opportunities, but they also entail risks. Companies involved in defence projects may lose access to certain foreign markets for geopolitical reasons, face high capital requirements and be subject to complex and stringent security standards, necessitating substantial compliance investments.
You often stress that we live in an era of permanent geopolitical tensions where the economy is a tool of politics. Which three “geopolitical due diligence” filters should Slovenian companies include in their investment and FDI decisions?
In my view, companies must integrate geopolitical risk assessment into their overall risk management systems, both for investments and day-to-day operations. Geopolitical due diligence is required both in securing uninterrupted access to inputs and in placing outputs on markets. In summary, it should include:
- Systematic monitoring of geopolitical stability in partner countries
- Analysis of regulatory changes
- Assessment of dependence on global political blocs
- Analysis of supply chain vulnerabilities that could materially affect operations
Slovenia can be seen as a link between the EU core and the Western Balkans, yet it is losing competitiveness and lacks a development consensus. What should its role be over the next decade?
Slovenia’s geographical position, demographic structure and historical experience make it a potential long-term bridge between the EU core and the Western Balkans. Unfortunately, many opportunities in this regard have not been fully utilised. In the early years of independence, cooperation with the region was often dismissed as “Yugoslav nostalgia”, while later it was labelled engagement with less demanding markets. Even outside the economic sphere, cooperation could have been much stronger. As the first regional country to join the EU, Slovenia has underutilised its comparative advantage of EU know-how.
Slovenia still has certain comparative advantages over Austria and Croatia in serving as a bridge, but these are weaker than in the past. Becoming a financial, economic and logistics hub now seems more distant than a decade ago, especially given the relocation of key corporate functions abroad and poor air and rail connectivity.
I have long advocated for Slovenia to prepare a new strategic document defining what it wants to achieve over the next decade or two, including a clear position on its role as a bridge between the EU core and the Western Balkans.
What kind of geopolitical and economic year do you expect 2026 to be - calm or turbulent?
If I have to choose, 2026 will undoubtedly be turbulent. Globally, continued geopolitical rivalry between the US and China can be expected, with other players adapting to the new reality. The world will remain unpredictable in terms of trade relations and the broader economy. While international institutions forecast solid growth, they stress significant risks linked to trade wars, high public debt and political uncertainty. In the EU, strategic autonomy and Ukraine will remain central issues. Slovenia, too, will face a turbulent year, marked by elections and the formation of a new government, alongside the need for more serious attention to public finances and expenditure alignment with available resources.