As the year draws to a close, the European Union (27 states) looks back on 12 turbulent months of geopolitical developments and policy-making. From the war in Ukraine to tensions across the Atlantic, several major challenges have dominated the discussions and are poised to continue. The stakes are high as 2026 approaches: the war in Ukraine rages on, the EU is in an unprecedented phase in its relationship with America, and it faces difficulties in boosting economic growth, all while the rapid pace of technological change adds further pressure. At the same time, the prospect of an escalation in confrontation with Russia has fueled calls for Europe to rearm, leading to increased defense spending and a shift in priorities away from the green transition. Ukrainian President Volodymyr Zelensky said in mid-December that 'Russia is preparing for a new year of war against the country in 2026,' after his Russian counterpart, Vladimir Putin, said Moscow would 'definitely' achieve its goals. The EU has long been sidelined in talks aimed at ending the war, as U.S. President Donald Trump leads efforts to bring Kyiv and Moscow to the negotiating table. Last month, Washington surprised Ukraine and its European allies by proposing a 28-point plan to end the war, which was widely seen as a response to core Kremlin demands before being later amended with the involvement of Ukraine and Europe. The prospect of direct talks between Europe and Russia now looms on the horizon. The EU's trade relations with its main partners also saw shifts in 2025, with relations with the United States and China, as well as the prospects of a trade deal with South American nations, remaining key points of friction. If current estimates hold, global trade volume is expected to surpass $35 trillion in 2025, an increase of about $2.2 trillion, or roughly 7% compared to 2024, according to the latest UN update for 2025. However, prospects for 2026 look more gloomy, the UN said in early December, as the European Commission noted in November that the eurozone economy would grow less than expected next year amid risks from international trade and geopolitical tensions. Since Trump's return to the White House in January, the U.S. president has imposed waves of new tariffs on imports to the American market. In a bid to avoid a full-blown trade war, EU Commission President Ursula von der Leyen and Trump reached an agreement in July to impose 15% tariffs on most EU exports, including cars, semiconductors, pharmaceuticals, and timber. The Commission now expects the eurozone economy to grow by 1.2% in 2026, down from previous forecasts of 1.4%. Trade tensions between China and the EU have been building for several years. The trade dispute escalated recently when China imposed temporary tariffs ranging from 21.9% to 42.7% on some European dairy products, according to a statement from China's Ministry of Commerce. Amid the EU's push to cut bureaucracy for competitiveness, a key question for the coming year is whether efforts to ease regulatory constraints will help the bloc keep pace with major tech powers, especially in emerging fields like artificial intelligence. After three years of rapid growth and soaring valuations, the AI sector enters 2026 with some of the hype cooling in the face of tough questions, yet massive investments are being poured into the field. Global spending on AI is expected to exceed $2 trillion in 2026, according to consulting firm Gartner. The EU rushed to pass a comprehensive AI law that took effect last year, but dozens of major European companies, including Airbus and Mercedes-Benz, have called for some of its provisions to be suspended, arguing they could stifle innovation. Meanwhile, the EU's confrontation with tech giants continues, as Brussels revises its leading digital regulatory frameworks. The EU's main rules have come under strong pressure from the Trump administration, as well as other companies and governments.
