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Misha Glenny is the Rector at the Institute for Human Sciences in Vienna. An award-winning journalist and broadcaster, he is a former UK Digital Security Journalist of the Year.
As we enter 2026, Europe finds itself on the back foot. Brussels is scrambling to prevent Presidents Donald Trump and Vladimir Putin from doing a deal on the Russo–Ukrainian war over the heads of both the Europeans and Ukraine. The fear is that President Trump will trade Ukrainian territory and European security for access to Russian mineral resources.
The Trump administration’s release of its National Security Strategy in early December stunned European leaders. It included a searing attack on European policies, claiming that the continent was facing “civilizational erasure”. The German Chancellor, Friedrich Merz, called much of the document “unacceptable”, implying that the strategic alliance between Europe and the USA was rapidly breaking apart.
The Europeans are not taking this lying down. If European Union member states agree on the seizure of frozen Russian assets to support Ukraine’s war and reconstruction efforts, this will enhance Brussels’ freedom of action and counter the widespread belief that Europe is an economic giant but a political dwarf.
Yet if the USA and Russia do agree a deal on Ukraine without taking Europe’s concerns into account, this will undoubtedly deepen divisions between Washington and Brussels; it will create tensions within NATO; and it will further complicate disputes over the transatlantic trade in goods and services. President Trump continues to insist on imposing tariffs on manufactured goods imported into the USA while trying to strongarm Europe and other regions not to place regulatory conditions on American digital services.
These various pressures are nonetheless pushing Europeans to innovate and accelerate the development of critical industrial sectors. The strategy of building up self-reliance is already having a positive impact in two areas in particular. Firstly, Europe was expected to channel a record EUR 381 billion into defense in 2025, a significant 11% increase on the previous year. Additionally, the UK devoted GBP 62 billion to defense in 2025. Taken together, European members of the European Union and NATO outspent China and Russia combined on defense, with the USA still way in front, sinking almost USD 1 trillion dollars a year into the Pentagon. The defense industry is creating jobs and encouraging a reinvigoration of Europe’s start-up culture that should not be underestimated.
This also dovetails with another unexpected consequence of US–European trade relations — the growing calls for the establishment of ‘digital sovereignty’. This movement wants to replace Europe’s dependency on American internet technologies, including cloud services and social media, with homegrown enterprises. The Danish government has led the way here by switching its networks from Microsoft products to the open source LibreOffice system.
This dynamism has contributed to a modest recovery of the European economies, led in particular by the southern states — notably Spain and Greece — but the Netherlands and Nordic countries have also shown resilience. It remains the case, however, that the two great engines of the European economy, Germany and France, continue to struggle. France’s debt ratio stands at around 110%, and some analysts warn that this is likely to worsen over the next two to three years.
The key to Europe’s long-term competitiveness and power is still bound up with the need for a unified capital market. The European Union continues to edge towards this goal, but some member states are dragging their feet. Proponents argue that such integration would supercharge investment in blue-chip companies and once again attract not just entrepreneurial activity but individuals to relocate to Europe. It remains unclear how long it will take to achieve this, but the pressure to deliver is mounting.
This is partly due to persistent concerns that Europe may be heading towards a new round of populist governments that will be less inclined to encourage economic and political integration within the bloc. The potential electoral success of France’s far-right leader Joel Bardella in France’s 2027 presidential race is the most obvious manifestation of this risk. But the populists aren’t having it all their own way.
As 2026 unfolds, the Europe’s most anticipated election will be in a surprising country — Hungary. Prime Minister Viktor Orbán, an acknowledged master of populist politics who is revered by the MAGA movement in the USA, lies 10% behind a new political party, Tisza, led by Péter Magyar, a former member of Orbán’s own Fidesz party. Since becoming Prime Minister for a second time in 2010, Orbán has often exasperated other European Union member states with his use of the veto to block critical policies, notably a Union-wide migration strategy and, more recently, aid to Ukraine. Should Orbán lose, European decision-making is likely to speed up, bolstering its reputation as an actor capable of decisive action on the geopolitical stage.
Despite the challenges, Europe’s cultural value remains extremely high, and countries across both the north and south of the continent continue to attract high-net-worth individuals and indeed capital investment. Europe boasts four of the top ten most livable cities in the world, according to The Economist’s index. Neither China nor the USA nor the Gulf States make the top ten, which helps explain why Europe, notably Italy and the Iberian states, continues to exert such a powerful pull on global wealth.
By contrast, Britain — with a flailing government and the continuing economic strain imposed by Brexit and low productivity — continues to see a steady exodus of centi-millionaires and billionaires. Several newspapers latched onto the data published by the Office for National Statistics showing a dramatic increase in emigration from the UK from all sectors of society, particularly among younger people. However, as always, the statistics are open to interpretation. The Economist published its own analysis suggesting that the current rate of emigration from Britain is actually lower than it was before 2016. The magazine argues that changes in how emigration is measured have fundamentally distorted the recent figures. The trend should become clearer over the next couple of years, once the revised methodology beds in and a more accurate picture emerges.
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