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Europe Update Video

Published on December 23, 2025

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By

Jacob Funk Kirkegaard

Today I recorded an EU update video. Link HERE.

The EU, as predicted right before the year-end deadline, provided Ukraine with the required €90bn financial support for 2026-27. In the end, EU leaders chose not to directly access Russia’s frozen assets in European financial institutions, but instead simply issue €90bn worth of new common Eurobonds, and relend the money to Ukraine as an interest free loan, repayable only once Russia pays war reparations to Kyiv. The additional interest expense will be covered by the regular EU budget, setting up an even more intense budget negotiations among the EU members in 2026.

With Ukraine’s crucial near term financial needs covered, negotiations between the Trump Administration, Ukraine and the EU will go on, but with little hope, per the recent statements and actions by Vladimir Putin, that Russia will agree to anything the three can put on paper, meaning the base case for the war remains that it lasts through 2026 and into 2027.

With the war likely to go on, the European macro outlook, as verified also by the ECB’s December 2025 forecast update, looks likely to continue reflecting relative stability in 2026, as growth looks set to remain around potential at 1.3-1.4 percent, inflation well-anchored around 2 percent and unemployment at or near current historical lows. This benign macro outlook should put European markets on a solid footing also in the coming year.

Jacob

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