Why 2025 will be a make-or-break year for European Union

The European Union stands at the cusp of a transformative year as Donald Trump returns to the White House on 20th of January 2025. His re-election casts uncertainty on US foreign policy, Nato, and support for Ukraine, while the EU finds itself grappling with internal political fragmentation, economic malaise, and the rising influence of far-right populist movements.

These challenges, compounded by the weakening leadership in France and Germany, will determine whether the EU can solidify its position as a geopolitical entity or descend into an “ever-looser union.” The decisions made in 2025 will shape the bloc’s future, making this year pivotal.

The EU’s resilience has been tested repeatedly over the past two decades, from the 2008 financial crisis to Brexit, the Covid-19 pandemic, and Russia-Ukraine war. Yet, the current convergence of challenges could prove the most critical. Trump’s return to power is expected to strain transatlantic relations, particularly in defence and trade.

His potential rollback of US support for Ukraine could leave Europe as Kyiv’s primary backer, requiring financial and military commitments that many member states are ill-prepared to shoulder.

Internally, the EU faces a daunting array of crises. Political turmoil in France and Germany — the bloc’s traditional engines of integration — has left both nations grappling with minority governments and fragile coalitions.

Era of geopolitical instability

France’s Prime Minister Michel Barnier was ousted last week in a no-confidence vote, leaving the country politically adrift, while Germany is heading for snap elections after Chancellor Olaf Scholz’s coalition collapsed over economic policy disputes. This leadership vacuum comes at a time when the EU needs decisive action to navigate an era of geopolitical instability.

Economic challenges compound the bloc’s woes. The Eurozone is teetering on the edge of recession, with manufacturing and services contracting sharply. Germany and France, the EU’s two largest economies, are facing stagnation and fiscal uncertainty, further undermining confidence in the bloc’s economic stability.

The reformed spending rules and the expiration of post-pandemic funding threaten to leave highly indebted countries, notably France and Italy, with significant budgetary gaps. Without adequate planning or new funding mechanisms, the EU risks a return to the economic stagnation and political instability seen during the 2010s.

The rise of far-right populist movements poses an existential threat to the EU’s core values of integration and multilateralism. Parties like France’s National Rally, Germany’s Alternative für Deutschland (AfD), and Austria’s Freedom Party (FPÖ) are gaining ground, fuelled by public discontent with Brussels’ perceived inefficacy and overreach.

These parties not only challenge the EU’s authority but also undermine its ability to present a united front on critical issues such as climate policy, migration, and defence.

Populist leaders are exploiting the EU’s internal divisions, from debates over fiscal discipline to the contentious enlargement process. The potential accession of Ukraine and Balkan states has sparked fears among smaller member states about losing influence, while wealthier nations like Germany and the Netherlands balk at the financial costs of integration.

France and Germany’s political crises are particularly troubling given their historical role as the EU’s driving forces. In France, President Emmanuel Macron faces mounting calls to resign amid political gridlock and an unstable parliament divided among three rival factions. Germany, meanwhile, is entering a period of prolonged uncertainty, with no clear resolution in sight until at least mid-2025.

Without stable leadership from these two countries, the EU’s ability to implement reforms or respond to external threats is severely hampered. The Draghi report, wrote by former Italian Prime Minister and European Central Bank President Mario Draghi, offers a bold road map for addressing the European Union’s economic challenges.

Commissioned by European Commission President Ursula von der Leyen, this comprehensive 400-page document outlines strategies to close the EU’s innovation gap with the US, align decarbonisation with competitiveness, enhance economic security, and reduce dependencies on external powers.

However, the bloc’s ambitious agenda, outlined in this report on boosting productivity and competitiveness, risks stalling as national leaders turn inward to address domestic crises.

EU’s strategic priorities

Trump’s presidency casts a long shadow over the EU’s strategic priorities. His hostility and transactional approach toward Nato and scepticism of European defence spending threaten the alliance’s cohesion at a time when unity is essential to counter Russian threat. His trade policies, which often target the EU, could exacerbate economic difficulties, particularly for export-driven economies like Germany.

Moreover, Trump’s potential disengagement from Ukraine would shift the burden of supporting Kyiv squarely onto European shoulders. This scenario would test the EU’s resolve and resources, especially as public support for the war wanes in some key member states.

Amid these challenges, the EU must undertake bold reforms to secure its future. Incremental changes are no longer sufficient; the bloc needs a comprehensive overhaul of its institutional structures to function effectively as a geopolitical actor. This includes streamlining decision-making processes, strengthening fiscal and defence integration, and addressing the democratic deficit that fuels far-right populist resentment.

The EU’s survival hinges on its ability to adapt to an evolving global order. As Portuguese President Marcelo Rebelo de Sousa noted, Europe is at the end of a historical cycle, and its institutions, designed for a post-World War II world, are ill-suited to the challenges of the 21st century.

2025 represents a make-or-break moment for the European Union. To thrive, the bloc must confront its internal divisions, reinvigorate its economic model, and assert itself on the global stage.

This requires visionary leadership, particularly from France and Germany, as well as a renewed commitment to the principles of solidarity and integration. The stakes could not be higher. Failure to act decisively risks consigning the EU to irrelevance in an increasingly challenging world.