Europe should address the security concerns stemming from foreign investments - especially from authoritarian countries before it moves to make use of them in the current financial crisis, an influential Brussels-based think tank Bruegel has suggested.

The report, published on Friday (7 November) points out that there is a clear tendency of a growing share of inward investment into the EU, including from sovereign wealth funds, to be coming from "countries with diverse political regimes with which Europeans may not always see eye-to-eye."

Sovereign wealth funds (SWFs) are state-owned investment funds composed of financial assets such as stocks, bonds, or other financial instruments. They have gained worldwide exposure recently by investing in several Wall Street financial firms that required substantial cash infusions due to the subprime mortgage crisis.

In Britain, some banks, including Barclays and Lloyds TSB, have turned to SWFs for capital to avoid the offer from the government's bail-out fund or to repay state preference shares as soon as possible, with Barclays having accepted some €8.9 billion from Abu Dhabi and Qatar.

"The current crisis may increase both Europe's need for such investment and its sensitivity to the non-economic implications," the authors of the report suggest, adding that "illiberal" or authoritarian countries now control more than 15 percent of world gross domestic product.

And they argue that while investor countries have incentives to refrain from political use of their assets, "these incentives are not powerful enough to spare Europe its own assessment of security risks linked to new trends in foreign investment."

The solution should be "a comprehensive, open and sustainable framework to address the security aspects of foreign acquisitions, without which there is a risk of protectionist drift that could harm the economy and impair the integrity of the single market."

The Bruegel think-tank argues that while there could be common EU legislation to anchor the aims and mechanisms for review of foreign investments, the security assessment of individual investments should be kept as the exclusive national competence.

The issue has recently been thrust into the spotlight with French leader Nicolas Sarkozy suggesting in October that EU member states should set up their own SWFs to purchase stakes in key companies in the region to prevent foreign "predators" from seeking control at knockdown prices.

The French media suggested Paris is thinking of a fund worth a total of €100 billion, to be put in addition to €10.5 billion already earmarked for boosting the capital of France's six biggest banks.