European markets and politics closed the year on sharply diverging trajectories.
London stocks delivered their strongest performance since the financial crisis, while geopolitical and fiscal strains deepened across the continent.
Germany signaled a historic break from US security dependence, Russia’s latest battlefield claims drew widespread doubt, and Hungary’s capital slid into junk territory amid a bitter state funding standoff.
Together, the developments underscore a Europe ending 2025 stronger in markets, but more fractured strategically and fiscally.
FTSE 100 posts best year since 2009
London’s blue-chip index ended 2025 with a commanding 21.6% gain, its best annual performance since 2009, the post-crisis rebound year.
The FTSE 100 closed near 9,931 points, narrowly missing the psychological 10,000 mark but cementing five consecutive years of positive returns.
Mining stocks, particularly Fresnillo’s explosive 412% surge on gold and silver strength, alongside robust banking and defence performers, powered the rally.
The 22.8% total return with dividends easily outpaced the S&P 500’s 17.5%, turning skeptics quiet on the index’s supposed “old economy” tag.
With three-quarters of constituents delivering positive returns, the FTSE 100 proved resilient despite Trump tariffs, geopolitical chaos, and UK economic headwinds.
Merz warns US security reliance over
In his year-end address, Chancellor Friedrich Merz warned Europe that it can no longer depend on Washington to guarantee security.
He framed 2025 as an “epochal shift,” marked by a weakening transatlantic partnership, Russian aggression beyond Ukraine, and mounting cyber threats across the continent.
Merz stressed Germany and Europe must “defend and assert interests much more strongly ourselves,” rejecting the notion that Europe is a “pawn in the hands of major powers.
His rhetoric signals a dramatic pivot from decades of strategic dependence. Berlin is boosting defense to NATO’s 5% GDP target by 2035, mobilizing €1 trillion for military investment over a decade.
With US protectionism rising and Trump reshaping NATO expectations, Merz positioned 2026 as Europe’s opportunity to reassert independence while addressing inflation, migration, and economic stagnation at home.
Kremlin drone claim draws skepticism
Moscow’s accusation that Ukraine launched 91 drones at Putin’s Valdai estate in Novgorod drew near-universal skepticism from Western analysts and EU officials.
The Kremlin released grainy nighttime footage of a drone wreckage in snow, claiming a “carefully planned” strike, but the Institute for the Study of War found zero corroborating evidence, no typical aftermath footage that follows Ukrainian deep strikes.
Ukraine flatly denied the attack, calling it a fabrication timed to derail Trump-brokered peace talks just after Zelenskyy met the US president in Florida.
EU diplomat Kaja Kallas branded it a “deliberate distraction” from negotiations. Russia signaled it would stiffen negotiating demands, though no credible independent verification emerged.
Local residents near Valdai reported hearing nothing that night, contradicting Moscow’s witness testimonies.
Hungary’s capital slips to junk
Moody’s slashed Budapest to Ba1 junk status, making it the only major European capital in sub-investment grade, a stunning indictment of Hungary’s political-fiscal dysfunction.
The downgrade wasn’t about bad management; it’s about liquidity strangulation.
Mayor Karácsony claims Orbán’s government cut state transfers by 30% while hiking the city’s solidarity contribution to 89 billion forints (€230.5 million), forcing Budapest toward a 33-billion-forint deficit by year-end.
Orbán counters that wealthy Budapest should shoulder higher levies for poorer regions, but refuses aid unless the city admits insolvency, surrendering financial autonomy.
The standoff is vicious: Paris rates A+ and Berlin rates Aa1, but Budapest now sits below most Western European peers, signaling acute uncertainty and higher borrowing costs ahead.
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