2025 was not a peaceful year for Europe. While war raged in Ukraine, Donald Trump exerted considerable pressure on the European Union, both in terms of trade and security. The European political scene is likely to remain turbulent in 2026. Here is an overview of what the future may hold.
Will the Mercosur trade agreement be approved?
“It seems certain that [the Mercosur trade agreement] will be signed in mid-January,” said a senior German official after the European summit in December, where Italy and France secured a one-month postponement of the decision on this trade agreement between the EU and Latin American countries. This seems rather optimistic. Although Italian Prime Minister Giorgia Meloni is satisfied with the reassuring measures for the agricultural sector, which she believes the European Commission can guarantee “in the short term,” the European Parliament can still reject the agreement. This happened in 2012 with the so-called ACTA trade agreement, when opponents criticized the “vague wording” of the agreement, which aimed to better protect intellectual property.
The failure of the Mercosur agreement would be a major blow, even though negotiations have been ongoing for more than a quarter of a century. Due to American protectionism and growing tensions with China, the EU is desperately seeking greater diversification in terms of trading partners. Latin America and Southeast Asia are particularly in the spotlight.
However, the EU has only itself to blame for the fact that it is still struggling to conclude trade agreements. Not only does excessive European regulation make European economic sectors, such as agriculture, less willing to accept products from the European market that do not have to meet strict European standards in practice. The EU also repeatedly tries to abuse trade negotiations by imposing its own political choices on the rest of the world. For example, negotiations with Mercosur had to be reopened because the EU suddenly started making new demands.
Poor trade relations with Southeast Asia also have a lot to do with European regulations. In particular, the European Union’s Deforestation Regulation (EUDR), whose entry into force has just been postponed once again, has caused discontent in countries such as Malaysia and Indonesia, which, according to NGOs, have made significant progress in terms of deforestation. This is partly due to their national standards, which the EU has long refused to recognize and is now asking the country to integrate with a great deal of EUDR bureaucracy.
The fact that Trump also negotiated important exceptions for the US has led to unfair treatment of trading partners. This shows that the EU’s regulatory zeal is not only about European producers and consumers, but also its good trade relations with the rest of the world. The EU has failed to conclude a trade agreement with India, and for this reason, it seems unlikely that this will happen in 2026. India is particularly concerned about the new European CBAM climate tariff, another relic of Ursula von der Leyen’s first term, which protects the European market and thus burdens European consumers with higher prices.
Do German state elections threaten Chancellor Merz?
Elections will be held in 2026 in Hungary, where Victor Orban is trying to remain in power, and in Bulgaria, where protests against corruption brought down the incumbent government in a country that joined the eurozone on January 1.
However, the main focus will be on the results of five state elections in Germany. Three of these will take place in former East Germany, where the right-wing populist AfD party is particularly strong. Since Merz won the election in February 2025, his CDU-CSU formation has fallen from almost 30% in the polls to less than 25%, while the AfD has risen from 21% to 26%, currently becoming the largest German party.
This is due to Merz reneging on his election promises: budgetary discipline has been thrown out the window and little has changed in terms of migration. Despite promises to strictly limit family reunification, between January and November Germany issued more than 101,000 family reunification visas, most of them to Turkey, Syria, India, and Kosovo.
The fact that the German authorities are particularly keen on restricting freedom of expression, with Merz himself personally filing nearly 5,000 complaints against online insults, does not exactly make him more popular. The debate on the so-called “Brandmauer” – the question of whether or not to cooperate with the AfD, for example by allowing the AfD to support a minority government – is in full swing.
Die Welt says: “The question of a minority government could become relevant in Saxony-Anhalt in September 2026 if the AfD becomes by far the strongest party and the centrist parties do not have a majority.” Depending on the losses of the CDU-CSU, this could also become an issue at the national level. Probably without Friedrich Merz.
How will the war in Ukraine evolve?
There is not much optimism that peace will come to Ukraine. US Vice President J.D. Vance said shortly before Christmas that he had “no confidence” in a “peaceful solution,” despite the Trump administration’s efforts.
Bojan Pancevski, Berlin correspondent for the Wall Street Journal, says:
“Contrary to media reports, military commanders are more willing to cede territory than Zelensky. His interest (survival) as a politician does not coincide with the national interest. Due to his poor leadership during the war and corruption, he is extremely unpopular among defenders, who openly talk about a coup but have no leader.”
In other words, it will be interesting to follow developments in Ukraine. Since European countries or the United States are unwilling to offer real security guarantees to the country, Pancevski is right when he says: “The most important guarantee for peace is a powerful Ukrainian army… Ukraine faces an unsolvable problem: Russia is its neighbor. It can only maintain its sovereignty by becoming a kind of Israel on steroids.
He also states: “Counting on the collapse of the Russian economy is foolish. Time is on their side, a militarized dictatorship that can and will accept enormous sacrifices.”
This last insight is far from common among advocates of increasingly severe economic sanctions: we are already on the nineteenth package of European sanctions, and Russia continues to trade, albeit indirectly.
Unlike sanctions, Western military support for Ukraine has succeeded in helping the country defend itself without the West entering into direct conflict with Russia. At least so far. Now that the US is no longer providing financial support, European leaders agreed in December to continue to support Ukraine financially. Fortunately, they were wise enough not to implement a de facto confiscation of Russian Central Bank assets held in the EU, even though Belgian Prime Minister Bart De Wever had to go to great lengths to explain how dangerous that would be.
Will there be an agreement on long-term European spending?
Negotiations on the EU’s next long-term budget, or multiannual financial framework (MFF), covering EU spending between 2028 and 2034, have become even more complex than before, as interest on the loan to Ukraine must also be financed from it. According to estimates, this amounts to over €3 billion per year. If the war continues, further joint EU debts could be incurred.
A “frugal” alliance consisting of Austria, Sweden, Germany, the Netherlands, Finland, and Ireland has now been reinforced by France and Belgium, both net contributors to the EU budget, and possibly also by Denmark, starting in January. They are calling for savings in the EU budget.
The intention is to take final decisions at a European summit in December 2026. One of the European Commission’s main obsessions is to obtain more “own resources,” i.e., fiscal powers. Fortunately, Member States are hostile to plans such as the “Corporate Resource for Europe” (CORE) or the “Tobacco Excise Duty Own Resource” (TEDOR).
Swedish Finance Minister Elisabeth Svantesson has already warned that this proposal is “completely unacceptable.” She pointed out that the Commission not only wants to tackle tobacco products, but also tobacco alternatives, and complained: “Furthermore, the Commission wants the tax revenue to go to the EU and not to Sweden.” It is precisely the Swedish approach, whereby non-harmful or less harmful tobacco products, such as snus, are legal, that has led to a significant reduction in the number of smokers and, consequently, a significant reduction in smoking-related diseases. However, the European Commission swears by the paternalistic approach and ever-higher taxes, ignoring the fact that this could stimulate the black market.
Unfortunately, NGOs also seem to maintain considerable influence over European decision-making in this area, and their amendments are being adopted to the letter. Dutch EPP MEPs Sander Smit and Dirk Gotink are doing a great service in fighting for greater transparency in the public funding of NGOs. The latter addresses a letter to the NGOs that are trying to distance him from this dossier. Regarding the secret contracts between the European Commission and NGOs, which are said to contain lobbying instructions, he points out that “the only reason these contracts are not made public is because the NGOs themselves are preventing it. The Commission would like to make these documents public, but it cannot legally do so without your consent.” It is significant that even minimal transparency in this area is already provoking resistance.
Will the EU put an end to its excessive regulation?
With the approval of the so-called first “Omnibus” package by the European Parliament, a first step has been taken towards reducing excessive European regulation. Certainly, during the first term of Commission President Ursula von der Leyen, many extremely costly European regulations were added under the “Green Deal.”
The most controversial aspects of the CSDDD, the directive that imposes a “duty of care” on companies, involving considerable bureaucracy to monitor all kinds of social and environmental standards in their value chains, have been watered down, but the legislation is still coming into force.
Meanwhile, the EU continues to impose monstrous fines on large American technology companies for arbitrary reasons, with the aim of restricting freedom of expression, and the introduction of the digital euro continues, despite all opposition. The EU’s de facto ban on non-electric cars has recently been significantly watered down, but cars still must emit 90% less CO2 than in 2021, and car manufacturers must offset the 10% of CO2 that cars are still allowed to emit by producing with “green steel” from the EU, which drives up the price again.
At the end of this year, the EU proposed a further tightening of its climate targets and, to top it all off, extended the CBAM (Carbon Border Adjustment Mechanism) climate tariff, making car parts, refrigerators, washing machines, building materials, and agricultural machinery more expensive. Who wants that?
If there is not enough protest from Europe itself, we will have to pin our hopes on the US. The US is not only dissatisfied with the ongoing attacks on Big Tech, but also with Europe’s refusal to stop applying sustainability guidelines to American companies. The EU considers itself a regulatory “superpower” that can afford this kind of extraterritoriality, but by 2026 Donald Trump may well have changed things. Marco Mensink, director general of the European Chemical Industry Council, says in the Financial Times: “The EU model was to set ambitious standards on the assumption that others would follow suit, but we are approaching a situation where Europe is leading the way on its own.” The chemical industry should know. It is currently leaving Europe, and the fact that there is absolutely no debate about the European Emissions Trading System (ETS), which keeps gas prices artificially high for our industry, speaks volumes about the sense of urgency in Europe.
Illegal mass migration: is there finally a turning point?
Despite a 22% drop in the first 10 months of 2025, 150,000 people still managed to enter the European Union illegally, which equates to almost 200,000 on an annual basis. The problem therefore remains particularly serious.
On December 16, 19 EU member states sent a letter to the European Commission asking the Commission to develop guidelines for the use of current and future EU funding programs to support and implement so-called innovative solutions. These solutions include the creation of expulsion centers abroad for people who have to leave Europe, which the European Commission calls “return hubs.” In early December, EU institutions adopted laws on the concept of safe countries, which should make it easier to reject asylum applications.
It remains to be seen whether this new approach will be effective and whether it will work. The Australian model, which the UK also wanted to introduce with the Rwandan model, seems to be something different. It consists of ensuring that anyone who enters illegally will never be entitled to asylum in the country they tried to enter. However, Australia allows these people to apply for asylum, which it then grants in another country, such as Cambodia. Asylum seekers must also wait outside Australian territory, specifically in Nauru.
This approach has been successful for two decades, has been supported by both left-wing and right-wing governments, and has ensured that during that period—at least officially—there have been no more drownings in Australian waters. This contrasts with the 30,000 people who have died in the Mediterranean Sea in the last 10 years alone.
