As Iran buckles under sanctions and Afghanistan sinks deeper into violence, Pakistan is a relatively stable partner for the EU in a volatile region. In June, Pakistan and the EU signed the EU-Pakistan Strategic Engagement Plan, which creates a forum for regular military-to-military talks on security issues, while promoting democracy, the rule of law and human rights.

The EU describes the plan as "a forward-looking and ambitious political framework," involving cooperation on "new and untapped areas such as energy and climate change, education, culture, science and technology."

Pakistan sees the agreement as a sign that the EU recognizes Islamabad's efforts in promoting the values of democracy, freedom of expression and human rights.  

Pakistan's foreign minister, Shah Mehmood Qureshi, lauded the agreement after it was signed.  "It shows engagement, it shows acceptability, it shows that the West wants to promote its ties with Pakistan," Quershi told DW.

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Although it's true that both sides are keen to deepen their ties, serious differences remain. These include deficiencies in Pakistan's attempts to curb terror financing and money laundering, along with its commitment to democratic institutions.

But as the geopolitical situation in the region grows more unstable, the EU is seeking to balance its governance values with strategic imperatives, which include stopping terrorism, and a stronger role in mediating negotiations in Afghanistan.

"Pakistan is seen as an important geopolitical player," said Shada Islam, director of Europe and geopolitics at Friends of Europe, a Brussels think tank.

"So while there are concerns about human rights, women's status, press freedom and minority rights in Pakistan, the EU believes it is important to maintain good contacts with Islamabad. The new engagement plan is an illustration of that approach."

The EU's carrots and sticks 

The EU's Pakistan strategy generally follows parallel tracks of reward and punishment. Good behavior from Islamabad is rewarded with tariff preferences like zero duties on two-thirds of all goods under the so-called the Generalized System of Preferences, or GSP+.

Since 2014, the GSP+ has given a major boost to Pakistani textile exports. The deal has also brought in foreign revenue in the face of China-driven trade imbalances. Trade with the EU has doubled and the bloc is now Pakistan's biggest export market.

But these economic benefits come with an obligation to uphold the EU's democratic values. Pakistan pledged to ratify and effectively implement 27 core international conventions on human and labor rights, environmental protection and good governance. 

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Although Pakistan says it has progressed on implementing national and provincial legislation, the EU has criticized progress as being painfully slow.

The EU's ambassador to Pakistan, Jean Francois Cautain, has regularly warned that "Pakistan was failing to take full advantage of the GSP+ scheme."

And considering the wide gaps between Pakistan's promises and actual implementation of the international conventions, it is currently unclear whether the country will continue to get duty-free access to Europe beyond 2020.

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Pakistan financing terror?

If the GSP+ arrangement and the cooperation agreement are a step forward for Pakistan's international image, accusations of terror financing are a step back.

Last year, the Financial Action Task Force (FATF), a global terror financing and money laundering watchdog, put Pakistan on its watch list, meaning that the country has "structural deficiencies" in stopping money laundering and terror financing.  

The EU reacted with concern, but stopped short of cutting off Pakistan's preferential trade status. The move was supported by the US, France, Britain and Germany. Pakistan barely escaped being blacklisted, thanks to the support of China, Turkey and Malaysia.

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Pakistan fears that an FATF blacklisting would deal a blow to its already faltering economy, making it harder for global investors and multinationals to do business in the country.

It could also have implications for its $6 billion (€5.32 billion) IMF bailout plan. To alleviate pressure from the FATF ruling, Pakistan will have to demonstrate progress in disrupting transactions that finance terrorism and money laundering before the next FATF meeting being held in October in the US city of Orlando, Florida. Pakistan is optimistic that it will meet its obligations and is counting on EU support. 

"Our government is sincere in fulfilling the political obligations. The Europeans feel Pakistan has taken sufficient steps in the right direction and downgrading Pakistan would not be helpful. So I am grateful to the European support for Pakistan in Orlando," said the Pakistani foreign minister. 

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Trouble at home?

Despite this optimism, Western diplomats in Islamabad appear increasingly concerned at the government's capacity to keep its commitments. And the government led by Prime Minister Imran Khan has been criticized for failing to live up to its promises of a "new Pakistan."

More than a year into his government, Khan has yet to convince ordinary Pakistanis that his government has a viable economic plan to take millions out of poverty. Rising food prices, interest rates and currency devaluation are having a cumulative negative effect on the economy. The government blames the corruption of previous governments for the country's ills. 

Consequently, several leading opposition figures have been arrested, including former President Asif Ali Zardari. Khan calls it accountability, but his opponents say it's a political witch hunt.

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Private media are accusing the government of muzzling the press. Leading human rights activists and journalists say they have never experienced such pervasive silencing of dissent under a civilian government as is becoming a norm under Khan.

As the EU tries to nudge Pakistan toward a path of regional peace and democracy with the strategic engagement plan, Brussels needs to admit the limitations of cooperation. Khan's government is seen as weak and ineffective, as well as widely dependent on the country's powerful army.

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In many ways, experts say, whether Pakistan follows a path of peace and democracy, or drifts toward authoritarianism, is largely up to the nation's most powerful institution, its military.