From global diplomacy and trade to defence and rapid technological development, the EU has its work cut out as it navigates the transition into a year of high-stakes challenges.

As the year approaches its end, the European Union and its 27 member states look back at a turbulent 12 months of (geo)politics and policymaking. From the war in Ukraine to strained transatlantic relations, some major challenges driving the debates appear to be here to stay.

The stakes are high for 2026 as Russia's war of aggression shows no sign of easing, the EU finds itself in an unprecedented relationship with the United States, the bloc grapples to keep its economy afloat, while technology continues to develop rapidly.

The prospect of war with Russia has raised the need to rearm the European nations, shifting priorities away from the green transition to increased spending on defence.

The EU seeks to continue its drive to simplify its regulation for the benefit of competitiveness. Observers and critics however fear key rulebooks - such as pioneering climate laws and digital regulation - may dash further to the background amid pressure from member states and across the Atlantic.


Ukraine: EU agrees financing as peace talks drag on

Ukrainian President Volodymyr Zelenskyy said in mid-December that Russia was preparing to wage a new 'year of war' on his country in 2026, after his counterpart Vladimir Putin said Moscow would 'certainly' achieve its objectives.

Moscow's troops have been steadily advancing at the eastern front in recent months, with Putin on Friday hailing the Russian army's territorial gains - and threatening more in the coming weeks.

EU leaders on Thursday (December 18) agreed to provide Ukraine with 90 billion Euro for the years 2026 and 2027 to finance its defence against Russia. Without new funding, Ukraine was at risk of running a deficit of 45 to 50 billion Euro next year and of having to scale back its military production, European Council President António Costa said.

The EU has long been sidelined in talks with Russia to end the war, with US President Donald Trump coordinating efforts to get Kyiv and Moscow to the table. Washington last month stunned Ukraine and its European allies by presenting a 28-point plan to end the war widely seen as caving in to the Kremlin's key demands, which has since been redrafted following Ukraine and Europe's involvement.

However, the prospect of direct talks between Europe and Russia has now come into view.

Kremlin spokesman Dmitry Peskov said Putin had 'expressed readiness to engage in dialogue' with his French counterpart, President Emmanuel Macron, in an interview published on Sunday by state news agency RIA Novosti.

The French presidency as a consequence welcomed that Putin was ready to speak with Macron, after the French leader said Europe should reach out to Russia again over ending the war rather than leaving the US alone to take the lead.

The Kremlin on Sunday however denied that three-way talks between Ukraine, Russia and the United States were on the cards, as Russian, Ukrainian and European diplomats were in Miami for separate talks with the US.

The EU - and especially members on the eastern flank, such as Poland - is also expecting further tests to its resilience to hybrid pressure, including disinformation, cyberattacks, and potential acts of sabotage.

Western security services blame Russia for a spate of drone flights, acts of sabotage, cyberattacks and online disinformation campaigns in Europe, which have escalated since its 2022 full-scale invasion of Ukraine.

Germany's domestic spy chief warned early December that Russia could step up sabotage, cyberattacks and disinformation campaigns next year when the EU's top economy, a strong backer of Ukraine, holds several regional elections.

Germany next year holds five regional elections, including in the ex-communist East, where the far-right and Moscow-friendly Alternative for Germany (AfD) party hopes to gain more support yet again.


No trade, no gain

The EU's trade relations with major partners have also shifted this year, as links with the United States, China, and the prospect of a trade deal with countries in South America remain key sticking points.

2026 forecast: If current projections hold, global trade in 2025 will exceed 35 trillion Dollar, the United Nations has said. This marks an increase of around 2.2 trillion Dollar - roughly seven percent - compared to 2024, it said in its final update of the year.

But the outlook for 2026 is more subdued, the United Nations said in early December. In November, the European Commission also said the eurozone economy will grow less than expected next year, as risks from international trade and geopolitical tensions weigh on the single currency area.

Since returning to office in January, US President Trump has for example slapped several waves of new tariffs on imports entering the United States. His administration has imposed a basic tariff of 10 percent on all countries since April, with much higher rates for some economies.

Aimed at averting an all-out trade war, European Commission President Ursula von der Leyen and Trump in July reached a deal that imposes 15 percent tariffs for most EU exports, including cars, semiconductors, pharmaceuticals or lumber.

The Commission forecast the single currency area to grow by 1.2 percent in 2026, down from a previous forecast of 1.4 percent. For the entire 27-country EU, Brussels expects growth of 1.4 percent in 2026, slightly lower than the 1.5 percent predicted in May.

The EU's data is based on the implementation of the tariffs as agreed. The Commission said the Eurozone economy was more resilient this year despite the turmoil caused by Trump's tariffs.

Eurozone family expands: The Eurozone will welcome a new member. On January 1, Bulgaria will join the single currency area, marking a major milestone in its EU integration, despite some domestic opposition.

The self-proclaimed 'only patriotic party in Bulgaria' Vazrazhdane has organised protests against adopting the Euro, arguing that it would undermine national sovereignty and harm living standards. A Commission spokesman however confirmed that Bulgaria's Eurozone accession decisions are final and cannot be reversed before January 1.

In mid-December, Bulgaria's government led by Prime Minister Rossen Jeliazkov resigned amid public anger over its economic policies and perceived failure to tackle widespread corruption - ushering in a period of prolonged political instability days before the nation gets a new currency.

EU-China trade: Trade tensions between China and the EU have been growing for several years.

In 2023, Brussels launched an investigation against electric cars manufactured in China, accusing Beijing of helping the industry with excessive state subsidies. Beijing subsequently responded with its own investigations and tariffs on imports from the EU, including spirits, pork and dairy products.

The trade clash intensified on Monday as China slapped provisional import tariffs of 21.9 percent to 42.7 percent on certain European dairy products, according to a statement of China's Ministry of Commerce.

China accuses the EU of significantly subsidising its dairy industry. Imports from Europe had noticeably harmed Chinese producers, the ministry said. The investigation into dairy products is to continue until a final decision is made, it said.

Cracking down on the small parcel wave: The EU on its part also seeks to tackle a flood of small parcels from China ordered via the likes of Shein and Temu. Last year, 4.6 billion small retail packages entered the European Union - more than 145 per second - with 91 percent originating in China, and their numbers are expected to keep rising.

European retailers argue they face unfair competition from overseas platforms, such as AliExpress, Shein and Temu, which they claim do not always comply with the EU's stringent rules on products.

Earlier this month, EU finance ministers agreed to impose a three-Euro duty on low-value imports into the bloc. The levy will be introduced on a temporary basis starting July 1 next year, staying in place until the bloc can settle on a permanent solution for taxing such imports.

The European Commission in May also proposed a small package handling fee worth two Euro. EU member states have yet to agree on the actual amount of that fee, but hope it will be applicable from late 2026.

EU-Mercosur, 25 years and counting: The EU last week said the signing of a trade deal between the EU and four Mercosur countries - Brazil, Argentina, Uruguay and Paraguay - will be postponed to January, after farmers staged a show of force against the pact outside an EU leaders' summit in Brussels.

At the same time, firm opposition from France and setbacks from Italy and other member states stalled the agreement.

The EU-Mercosur deal would create the world's biggest free-trade area and help the 27-nation bloc to export more vehicles, machinery, wines and spirits to Latin America at a time of global trade tensions.


AI boost and big tech battle

In view of the EU's drive to slash red tape in the name of competitiveness, a key question for next year is whether the EU's efforts to deregulate will help the bloc keep pace with technological powerhouses - in particular on rising technologies such as Artificial Intelligence (AI).

After three years of breakneck growth and soaring valuations, the AI industry enters 2026 with some of the euphoria giving way to tough questions. Money is pouring into AI, with spending expected to reach more than 2 trillion Dollar (1.7 trillion Euro) worldwide in 2026, according to the consulting firm Gartner.

The EU raced to pass its sweeping AI law that entered into force last year, but dozens of Europe's biggest companies, including Airbus and Mercedes-Benz, called for a pause on aspects they said risked stifling innovation.

Meanwhile, the EU's clash with big tech giants also rages on as Brussels rethinks its pioneering digital rulebooks. The landmark EU tech rules have faced powerful pushback from the US administration under Trump - but also from businesses and other governments.

Brussels denies bowing to outside pressure, but it has vowed to make businesses' lives easier in the 27-nation bloc and has unveiled proposals to change its rules on data protection and delay parts of the AI law.

After cheering the so-called 'Brussels effect' whereby EU laws were seen as influencing jurisdictions around the world, rights defenders increasingly fear the EU is withdrawing from its role as Big Tech's watchdog.


The content of this article is based on reporting by AFP, ANSA, ATA, BTA, dpa, PAP, as part of the European Newsroom (enr) project. AGERPRES (editing by: Mariana Ionescu)