A look ahead at the EU in 2026

By
Pieter Cleppe
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2025 was not an uneventful year for Europe. While the war in Ukraine raged on, Donald Trump put the European Union under considerable pressure, both in terms of trade and security. The European political scene is also likely to remain turbulent in 2026. Here is an overview of what may lie ahead.

1 – Will the Mercosur trade agreement be approved?

‘It seems certain that [the Mercosur trade agreement] will be signed in mid-January,’ a top German official comment after the EU 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. Even though Italian Prime Minister Giorgia Meloni would be satisfied with reassuring measures for the agricultural sector, which she believes the European Commission can guarantee ‘in the short term’, the European Parliament can still vote down the agreement. This happened in 2012 with the so-called ACTA trade agreement, when opponents criticised the ‘vague wording’ of the agreement, which was aimed at better protection of intellectual property.

A failure of the Mercosur agreement would be a major blow, even though negotiations have been going on for more than a quarter of a century. Due to American protectionism and increasing tensions with China, the EU is desperately seeking greater diversification in terms of trading partners. Latin America and South-East Asia are particularly in the picture.

However, the EU has only itself to blame for the fact that it is still struggling to conclude trade agreements. Not only does EU overregulation make European economic sectors, such as agriculture, less keen to allow products from the European market that do not have to comply with strict European standards in practice. The EU also repeatedly tries to abuse trade talks by imposing its own policy choices on the rest of the world. For example, the Mercosur negotiations had to be reopened because the EU suddenly started making new demands.

The poor trade relationship with South-East Asia also has a lot to do with EU regulation. In particular, the European Deforestation Directive (EUDR) – whose entry into force has just been postponed once again – has caused bad blood in countries such as palm oil exporting Malaysia and Indonesia, which, according to NGOs, have made significant progress in terms of deforestation. This is partly due to their own national standards, which the EU has long refused to recognise, as the EU now wants these countries to comply with lots of extra EUDR bureaucracy.

The fact that Trump also negotiated major exceptions for the US has led to unequal treatment of trading partners. It shows that the EU’s regulatory zeal not only affects European producers and consumers, but also its good trading relations with the rest of the world. The EU has also failed so far to conclude a trade agreement with India. The country is particularly concerned about the EU’s new protectionist climate tariff CBAM, another relic from Ursula von der Leyen’s first term in office, which burdens European consumers and importers with higher prices.

2 – Are German state elections threatening Chancellor Merz?

In 2026, elections will be held in Hungary, where Victor Orban is trying to remain in power, and in Bulgaria, where anti-corruption protests brought down the incumbent government, in a country that will be admitted to the Eurozone on 1 January.

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 is particularly strong. Since Merz won the national elections in February 2025, his CDU-CSU formation has fallen from almost 30 per cent in the polls to less than 25 per cent, while the AfD has climbed from 21 to 26 per cent, making it currently the largest German party. This has everything to do with Merz’s reneging on 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, Germany issued more than 101,000 visas for family reunification between January and November, most of which went to Turkey, Syria, India and Kosovo.

The fact that the authorities in Germany are also particularly enthusiastic about restricting freedom of expression, with Merz himself personally filing almost 5,000 complaints against online insults, does not exactly make him more popular. The debate about 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 raging.

Die Welt states: ‘The question of a minority government could become relevant in Saxony-Anhalt in September 2026 if the AfD becomes by far the strongest party there and the centrist parties do not have a majority.’ Depending on the losses for the CDU-CSU, this could also become an issue at the national level at some point. That will probably be without Friedrich Merz.

3 – How will the war in Ukraine develop?

There is not much optimism for peace in Ukraine. US Vice-President J.D. Vance himself said just before Christmas that he has no ‘confidence’ in a ‘peaceful solution’, despite the efforts of the Trump administration.

Bojan Pancevski, correspondent for the Wall Street Journal in Berlin, comments:

“In contrast to news reports, military commanders are more willing to trade land than Zelensky. His interest (survival) as a politician is not equivalent to the national interest. His mismanaging of the war and the corruption make him hugely unpopular among the defenders, who openly talk about a coup but lack a leader.”

In other words, it will be interesting to follow developments in Ukraine itself. Since European countries or the US are unwilling to offer real security guarantees to the country, Pancevski is right when he notes: ‘The key guarantee of peace will be a powerful Ukrainian military. (…) Ukraine suffers from an unsolvable problem: Russia is its neighbour. It can only preserve its sovereignty by becoming Israel on steroids.’

He also rightly adds: “Banking on the Russian economy collapsing is a folly. Time works for them, a militarised dictatorship that can and will accept huge sacrifices”

The insight that sanctions are badly failing is anything but common among proponents of ever-increasing economic sanctions – we are already on the nineteenth European sanctions package and Russia simply continues to trade, albeit indirectly.

In contrast to the sanctions, Western military support for Ukraine has been successful in helping the country defend itself without the West coming 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 supporting Ukraine financially. Fortunately, they were wise enough not to implement a de facto confiscation of Russian Central Bank assets held in the EU, although Belgian Prime Minister Bart De Wever had to pull out all the stops to explain how dangerous that would be.

4. Will there be an agreement on the long-term EU budget?

Negotiations on the EU’s next long-term budget, or Multiannual Financial Framework (MFF), which covers EU spending between 2028 and 2034, have only become more complex than before, as the interest on the newly agreed loan to Ukraine must also be financed from it. According to estimates, this amounts to more than €3 billion per year. If the war continues, more joint EU debt may 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 Denmark, from January onwards. They are demanding savings in the EU budget.

The intention is to make the final decisions at a European summit in December 2026. One of the European Commission’s major obsessions is to obtain more “own resources”, i.e. tax 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 alternatives to tobacco, and thereby complained: ‘What’s more, 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 illnesses. However, the European Commission swears by the paternalistic approach and ever-higher taxes, also ignoring the fact that this could well fuel the black market.

Unfortunately, NGOs also appear to retain considerable influence on the European decision-making process in this area, and their amendments are being adopted verbatim. Dutch EPP MEPs Sander Smit and Dirk Gotink are doing a great service in the fight for greater transparency in the public funding of NGOs. Gotink addresses NGOs that are trying to remove him from this dossier in a letter. 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 that the NGOs themselves are blocking this. The Commission would like to make these documents public, but cannot do so legally without your consent.’ It is telling that even minimal transparency in this area is already provoking resistance.

5. Stopping the EU regulatory machine

With the approval of the so-called first ‘Omnibus’ package by the European Parliament, a first step has been taken towards reducing excessive EU regulation. Certainly during the first term of Commission President Ursula von der Leyen, a lot of extremely expensive European rules were added as part of the ‘Green Deal’.

The sharpest edges of the CSDDD, the directive that imposes a ‘duty of care’ on companies, which amounts to a great deal of bureaucracy to monitor all kinds of social and environmental standards in their own value chains, have been watered down, but the regulation is still coming into force.

Meanwhile, the EU continues to hand out monster fines to US big tech companies on arbitrary grounds, with the aim of restricting freedom of expression, and the introduction of the digital euro continues, despite all opposition. The de facto EU ban on non-electric cars was recently watered down considerably, but cars still have to emit 90 per cent less CO2 compared to 2021, and car manufacturers have to compensate for the 10 per cent CO2 that cars are still allowed to emit by producing with unprofitable “green steel” from the EU, which drives up the price again.

At the end of this year, the EU came up with yet another new climate target, this time by 2040 and, to top it all off, it extended the CBAM (Carbon Border Adjustment Mechanism) climate tariff, making car parts, refrigerators, washing machines, building materials and agricultural machinery more expensive. Consumers will feel the brunt.

If there is not enough protest from Europe itself, we will have to pin our hopes on the United States. The US is not only dissatisfied with the continuing attacks on Big Tech, but also with Europe’s refusal to stop applying sustainability guidelines to American companies. The EU sees itself as a regulatory “superpower” that can get away with this kind of extraterritoriality, but by 2026, Donald Trump may well have changed that. Marco Mensink, Director General of the European Chemical Industry Council, states in the Financial Times that while the EU had become much less attractive to global boardrooms, Brussels had continued to legislate as if it was a regulatory hegemon, saying: ‘The EU model was to set out ambitious regulation assuming others would follow, but we’re approaching a situation where Europe is leading alone.’

The chemical industry should know. It is currently leaving Europe, and the fact that there is absolutely no debate about the European climate tax system ETS, which keeps gas prices artificially high for our industry, speaks volumes about the sense of urgency in Europe.

6. Ending illegal mass migration

Despite a 22 per cent decline in the first 10 months of 2025, 150,000 people still managed to enter the European Union illegally, which amounts to almost 200,000 on an annual basis. This problem therefore remains particularly acute.

On 16 December, 19 EU Member States sent a letter to the European Commission demanding that the Commission draw up guidelines for the use of current and future EU funding programmes to support and implement so-called innovative solutions. These solutions include setting up deportation centres abroad for people who have to leave Europe, which the European Commission calls ‘return hubs’. Earlier in December, the EU institutions also 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 United Kingdom also wanted to introduce with the Rwanda model, seems to be something else. It consists of ensuring that anyone who enters illegally will never be entitled to asylum in the country they tried to enter. However, Australia does allow these people to apply for asylum, which Australia then provides in another country, such as Cambodia. Asylum seekers must also wait outside Australian territory, specifically in Nauru.

This approach, which the EU remains wary to adopt, has been successful for two decades, it has been supported by both left-wing and right-wing governments, and it has ensured that during that period – officially at least – there have been no more drowning deaths in Australian waters. This is in contrast to about 30,000 people who have died in the Mediterranean Sea in the last 10 years alone.

 

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