The European political and economic landscapes ended the year with sharply different trajectories.
London’s stocks have delivered the best performance since the Financial Crisis, as geopolitical tensions and fiscal pressures continue to grow across Europe.
Germany’s historic departure from US-based security was signaled, Russia’s most recent battlefield claims were questioned, and Hungary’s capital fell into the junk category amid an angry standoff over state funding.
The developments show that Europe will end 2025 with a stronger market, but a more fragmented strategic and fiscal landscape.
The FTSE 100 has its best performance since 2009.
London’s blue chip index finished 2025 with an impressive 21.6% increase, which is its best performance ever since 2009. That was the year of post-crisis recovery.
The FTSE 100 ended the day at 9,931 points. This was just shy of the 10,000-point psychological mark, but it cemented five years in a row with positive returns.
The rally was driven by mining stocks and, in particular, Fresnillo, which soared 412 percent on the strength of gold and silver, as well as strong banking and defense performers.
Dividends alone generated a total return of 22.8%, easily beating the S&P 500 index at 17.5%. This has made skeptics forget about the supposed label “old economy”.
The FTSE 100 showed resilience despite Trump’s tariffs, UK economic challenges, and geopolitical turmoil.
Merz warns US security reliance over
Friedrich Merz, in his address to the European Parliament at year’s end, warned that Europe cannot depend anymore on Washington for security.
He described 2025 as a “epochal change,” characterized by the weakening of transatlantic relations, Russian aggression outside Ukraine and increasing cyber-threats across Europe.
Merz said that Germany and Europe “must defend and assert our interests more strongly” and rejected the idea that Europe was a “pawn at the mercy of the major powers.”
He is signaling a radical shift from years of strategic dependency. Berlin will increase defense spending to NATO’s target of 5% GDP by 2035. This involves mobilizing EUR1 trillion in military investments over the next decade.
Merz sees 2026 as Europe’s chance to assert its independence, while also tackling inflation, migration and stagnation in the home.
Kremlin claims about drones are met with skepticism
Analysts and EU officials in the West have reacted with skepticism to Moscow’s claim that Ukraine had launched 91 drones on Putin’s Valdai Estate, located near Novgorod.
The Kremlin has released a grainy, nighttime video of drone wreckage on snow. They claim that it was a “carefully-planned” strike. However, the Institute for the Study of War did not find any evidence to support this, and no footage of the typical aftereffects of Ukrainian deep strikes.
Ukraine denied that the attack took place, calling it an invention timed just to disrupt peace talks mediated by Trump after Zelenskyy had met with the US President in Florida.
Kaja Kallas, an EU diplomat, called it “a deliberate distraction” away from the negotiations. Russia indicated that it would increase its demands in negotiations, but no independent confirmation was forthcoming.
Residents of Valdai said they heard nothing in the night, contrary to Moscow’s witnesses.
Hungary’s Capital Slips into Junk
Moody’s downgraded Budapest’s rating to Ba1 junk, making it Europe’s only sub-investment-grade capital. This is a shocking indictment on the political and fiscal dysfunction in Hungary.
It’s not about poor management, but about liquidity strain.
The mayor of Budapest, Karacsony, claims that Orban’s government has cut the state transfer by 30% and increased Budapest’s contribution for solidarity to 89 billion HUF (EUR 230.5 million) forcing Budapest towards a deficit of 33 billion HUF by year end.
Orban argues that the wealthy city of Budapest should pay higher taxes for regions in need, yet refuses to provide aid until the city acknowledges its financial bankruptcy and surrenders their autonomy.
Budapest is now below the majority of Western European counterparts, indicating a high level of uncertainty as well as higher borrowing costs.
The post Europe Bulletin: FTSE 100 surge; Defense pivot; Kremlin claim about drones may change as new information becomes available.
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