Europe is ending a gut-wrenching year on a mixed note.
At their summit in Brussels on 18–19 December, EU leaders failed to agree to use €210 billion in frozen Russian assets to provide Ukraine with the sustained military and financial support that it needs.
But crucially, they decided to collectively borrow €90 billion to fund Kyiv over the next two years, ensuring it can fight on for now. Hungary’s pro-Russian prime minister, Viktor Orbán, who had promised to veto an EU loan, backed down after securing an opt-out, as did Slovakia and the Czech Republic.
Can Europe sustain that positive momentum in 2026, or are further setbacks in store?
Three big challenges
For sure, Europe will continue to face huge economic, political and geopolitical challenges.
Economically, it is lumbered with slow growth, high debts, huge new defence needs and massive welfare commitments. Its ageing societies resist later retirement while also rejecting youthful immigrants. And its open economies remain reliant on trade in an era of rising protectionism and cut-throat Chinese competition.
Politically, Europe is often polarised and paralysed, with weak coalition governments that feel threatened by far-right populists, who are newly encouraged by Donald Trump’s America.
Geopolitically, it is vulnerable to Russian aggression, American bullying and Chinese chokeholds, while its efforts to build new alliances are often hamstrung by domestic politics: witness the repeated failure to agree a trade deal with the Latin American countries of Mercosur.
But in the holiday spirit of good cheer, here are three reasons for hope.
Economic upside?
For a start, Europe’s economy is stronger than it seems. Despite massive economic and geopolitical uncertainty, a stronger euro, Trump’s tariffs denting exports to the US and soaring imports from China eroding its manufacturing base, the eurozone is set to grow faster this year (around 1.4%) than it did in 2024, with inflation broadly on target. Indeed, despite all the hype about artificial intelligence in the US, European stockmarkets have outpaced America’s in euro terms in 2025.
That economic momentum may be sustained next year. Even without further interest-rate cuts, the boost to investment and spending from looser monetary policy – the European Central Bank has halved its key deposit rate, to 2%, since June 2024 – will continue to be felt. Lower energy prices, notably of oil, will also help.
Meanwhile, Europe’s biggest economy, Germany, is going on a borrowing spree to boost investment in defence and infrastructure. The EU’s Covid funds will continue to lift Italy, while immigration juices Spanish growth and Poland’s boom powers on. And in France, the ongoing parliamentary stalemate entails little in the way of fiscal tightening, supporting spending next year. More broadly, the EU has greenlit increased borrowing for defence, which will also act as a fiscal stimulus.
In short, the EU economy may surprise on the upside in 2026.
Ousting Orbán?
Politics may provide the biggest positive next year. 2025 saw the election of a new German Chancellor, Friedrich Merz, a Christian Democrat who has described his grand coalition with the Social Democrats as centrism’s last chance of holding off far-right populism.
The implicit assumption is that if nationalists ever win power, countries are condemned to an erosion of democratic institutions and entrenched illiberal rule, as Orbán has engineered in Hungary since 2010.
That danger is real. But it is not the only possibility. Some far-right politicians have moderated their positions in order to win power and mostly remained responsible once in office: witness how Giorgia Meloni governs Italy largely as a traditional conservative.
In the many European countries that have parliamentary systems in which many political parties win seats on the basis of proportional representation, far-right parties can typically gain power only as part of a coalition, limiting their sway. And when they disappoint voters, they can be ditched.
Note how Geert Wilders’ far-right Freedom Party, which had triumphed in the 2023 Dutch elections, flopped in this year’s vote. The big winner was its antithesis: the socially liberal, pro-EU D66 party led by a 38-year-old gay man who campaigned on a platform of youthful can-do optimism.
And even in countries where nationalists seemingly gain a lock on power, as in Poland between 2015 and 2023, a united opposition can eventually eject them.
2026 looks set to be a quiet year electorally. Barring the remote possibility that France’s President Emmanuel Macron calls early legislative elections (or resigns), only three EU countries will have parliamentary elections: Denmark, Sweden and Hungary.
Orbán’s grip over the media, legal system and other civic institutions is such that elections in Hungary are usually a forgone conclusion. But this time he is facing his most formidable foe yet: Péter Magyar, a charismatic politician who knows Orbán’s weaknesses because he was previously a senior member of the ruling Fidesz party. With the economy ailing and voters sick of high-level corruption, Orbán looks vulnerable, and Magyar’s new Tisza party consistently leads in independent polls.
No doubt Orbán will fight dirty, with the help of his foreign allies, Trump and Russia’s Vladimir Putin. But next April’s election offers a good chance of finally ousting him.
That would be great for Hungarians, who have seen their democracy and freedoms eroded. And it would also be a big victory for the EU, since it would strengthen the rule of law, remove a frequent veto-wielder and weaken the EU’s external enemies.
Geopolitical steel?
Geopolitics is a wild card. 2025 highlighted the EU’s weaknesses, as my recent column explained. Its dependence on Trump’s America for its defence against Russian aggression saw it accept an unfair US trade deal and abase itself to try to prevent Trump abandoning Ukraine altogether. China’s rare-earths stranglehold, which were weaponised in its standoff with the US, also threatened to stall European industry.
But this newfound vulnerability has also focused minds. It is now crystal clear that unless the EU steels itself for a new world order where hard power rules, it will be torn apart by hostile foreign powers.
As the latest summit in Brussels showed, EU leaders are still wary of flexing their geopolitical muscles. But eventually they still found a way to support Ukraine. Might they again surprise us with their fortitude in 2026?
After all, Europe tends to advance in a crisis – and crises don’t come much bigger than this.
