European Union: Risks and Development Scenarios (2025–2035)

Part 1. Risks

1. Economy

Stagnation and the investment gap

Since 2023, economic growth rates in most EU countries have remained low—no more than 1–1.5% per year—while labor productivity in industry lags behind that of the United States and China by 10–25%. The shortfall in private and public investment in decarbonization, digitalization, defense, and ambitious growth plans is estimated at €800 billion per year. This constrains industrial modernization, hampers innovation, and reduces the EU’s competitiveness compared with the United States and the PRC.

The EU is significantly behind in the development of critical digital and breakthrough technologies such as artificial intelligence (AI), big data analytics, and robotics: the European AI market is estimated to be half the size of the American and Chinese markets despite comparable GDP levels. Highly skilled specialists and researchers are relocating to the United States or China, while the EU’s critical dependence on American and Asian cloud services (85% of the EU market), chips, and algorithms makes it vulnerable to political pressure and cyber threats.

Taken together, these factors slow economic growth and weaken competitiveness in global markets, creating the risk of long-term stagnation and economic decline, undermining prosperity and social stability in the EU.

Energy dependence, high energy costs, and the “green transition”

The abandonment of Russian energy resources has made energy more expensive. Fifty-five percent of energy resources in the EU are imported, and their cost is higher than in the United States and China. Despite the de facto abandonment by the United States of the “green transition” in favor of fossil fuels and nuclear energy, the EU has maintained its previous course with minor adjustments (nuclear energy has been recognized as part of the “green transition”). This requires large-scale investment, but stagnation in the EU’s largest economies over the past two years has created a dilemma between the “green transition” and fiscal sustainability.

The EU is actively expanding its own electricity generation from renewable sources (growth from 34% to 47% of the total energy mix between 2020 and 2024). However, if the balance between ambition and budgetary capacity is not maintained, the “green transition” will become a heavy burden on the economy.

External trade conflicts

U.S. trade policy has become a new source of risk. In the spring of 2025, the administration of Donald Trump introduced “reciprocal” tariffs on imports from the EU. In July 2025, the EU and the United States reached an agreement on a unified tariff of around 15% and the elimination of tariffs on certain goods. The automotive industry, mechanical engineering, the chemical industry, and agriculture were particularly affected. The trade war between the United States and the EU has been stabilized through a compromise agreement; however, the risk of further escalation remains. At the same time, competition from China and India is intensifying, reducing the EU’s opportunities in traditional export niches.

2. Social sphere and migration

Demographic ageing

By 2040, the EU may lose around 17 million people of working age, which will increase pressure on pension systems and healthcare. To compensate for the labour shortage, the attraction of migrants is being intensified, which creates additional risks. At the same time, the EU is losing the technological race in AI and industrial robotisation, which puts pressure on the labour market, hampers productivity growth, and makes European goods less competitive.

Pressure on the welfare state

Simultaneous financing of defence programmes, the “green transition,” and support for Ukraine limits the scope for increasing spending on healthcare, education, and social benefits. The authorities of the largest EU countries (Germany, France) have stated that the existing welfare-state model is financially unsustainable and are pursuing reforms of social systems (including pension systems) to achieve financial sustainability and adapt to demographic challenges. In the context of persistently high inflation, this increases the risk of protests and strikes.

Migration

The EU’s lenient migration policy over the past 15 years has led to a significant increase in migrant inflows and to an overload of social support systems. Against the backdrop of slowing economic growth, this has generated public tension and contributed to the rise in popularity of right-wing and nationalist parties, the strengthening of anti-immigration sentiments, and social polarisation.

The “Pact on Migration and Asylum,” adopted in 2024, is aimed at increasing the effectiveness of the migration system, strengthening border control, and provides for measures to improve the integration of refugees into societies. The implementation of all elements of the Pact is planned by mid-2026 and requires significant financial and administrative resources, as well as large-scale reforms of the system.

In several countries, problems with the implementation of the Pact persist. Legal and humanitarian risks are increasing: the European Court of Human Rights demands the safeguarding of migrants’ basic rights, but the situation at the borders remains tense; new border procedures are being challenged in courts, and plans to establish external centres in transit countries are criticised by human rights organisations. The mechanism for the redistribution of migrants gives rise to disputes over fairness and legality and faces resistance from a number of countries. The problem of migrants’ social integration remains unresolved, which heightens social tensions and fuels support for radical parties. There remains a risk of an escalation of the migration crisis due to the escalation and continuation of military conflicts and instability in migrants’ countries of origin.

3. Security and defence

War on the continent

The ongoing war of Russia against Ukraine remains the largest source of instability in Europe and the most significant risk for the EU. The war requires large-scale financial and military support for Kyiv, creates risks to energy and transport infrastructure, and increases the likelihood of direct involvement of individual EU countries in hostilities.

Russia’s hybrid war against the EU and NATO

Russia actively uses cyberattacks, disinformation campaigns, manipulation of migration flows, and threats of the use of nuclear weapons as elements of psychological pressure, and conducts sabotage activities on EU territory and in maritime areas. In recent months, Russia has shifted to direct military intimidation: airspace violations and military exercises near borders. The objectives are to undermine the political unity of the EU and weaken support for Ukraine, discredit European institutions, provoke internal conflicts, and influence electoral processes by supporting political forces willing to pursue a “reset” of relations with Moscow.

Fragmentation and weakness of the EU defence industry

Despite measures (adopted belatedly) to develop EU defence production, its scale remains insufficient even for the current support of Ukraine. Around thirty national defence complexes within the EU and NATO, as well as the diversity of weapons systems, hinder joint operations and increase production costs. Even with increased spending, this limits real improvements in combat capability. Attempts at standardisation and joint procurement are progressing slowly due to competition among national manufacturers.

EU dependence on the United States in the military sphere

The EU’s strategic dependence on U.S. military technologies, the defence industry, intelligence, and logistics persists.

In February 2025, sharp criticism from the United States was voiced for the first time, demanding that European allies invest more in their own defence and assume greater responsibility for security, redistributing the defence burden from the U.S. to European countries. Political disagreements call into question long-term transatlantic relations; however, for now the current format and level of military cooperation within NATO have not been disrupted.

A transition toward a partnership in which European countries assume greater costs and responsibilities is emerging, while cooperation with the United States remains key to ensuring the security of the Euro-Atlantic region. At the NATO summit in The Hague on 24–25 June 2025, NATO member states agreed to increase defence spending from the level of 2% of GDP to 5% by 2035 and reaffirmed their commitment to the principle of collective defence. Russia was identified as a long-term threat to the alliance, which requires strengthening defence capabilities and readiness to repel possible aggression.

The risk of U.S. withdrawal from defence cooperation in Europe creates strategic uncertainty and stimulates the formation of the EU’s own defence autonomy.

4. EU governance and the political rightward “shift”

Complexity of decision-making

A governance system requiring consensus among 27 countries slows decision-making in key EU policy areas: energy, migration, security and defence, foreign policy, and new technologies. The EU lags behind China, the United States, and Russia in the speed of resource mobilisation and decision-making, which reduces its competitiveness amid an accelerating technological and geopolitical race.

The Council of the EU is discussing replacing the principle of consensus with more flexible and effective mechanisms that would accelerate decision-making on key issues and prevent blockages by individual member states.

Regulatory burden

Strict environmental and competition regulations often slow the implementation of innovations and reduce business flexibility compared with the United States and Asia. Companies face lengthy approval procedures, which complicates the rapid launch of new projects.

Rise of nationalist and Eurosceptic forces, fragmentation of the European Parliament

Right-wing parties have significantly strengthened their positions in France, Italy, Germany, the Netherlands, and a number of Eastern European countries against the backdrop of economic stagnation, inflation, fatigue with “green” reforms, the migration crisis, and dissatisfaction with the sluggish policies of Brussels. The strengthening of the right complicates the formation of stable coalitions and slows the adoption of budgets, “green transition” initiatives, and defence programmes. The growing number of national governments with Eurosceptic positions limits opportunities for deeper EU integration.

Part 2. Scenarios for EU development (2025–2035)

1. Economy

Baseline (probability 55%): “stagnationary growth and prioritisation of capital investment”

GDP growth of 1–1.5% per year; investment priorities focus on maintaining existing production capacities, infrastructure, and defence needs; moderate investment in AI and robotisation, with the gap vis-à-vis the United States and the PRC persisting; accelerated implementation of the energy strategy with a focus on renewable sources and nuclear energy, and a complete отказ from energy resources from Russia; continued reliance on energy imports, with energy costs higher than in the United States and the PRC; tariff frictions with the United States and the PRC are managed on an ad hoc basis.

Negative (30%): “protracted stagnation and market fragmentation”

GDP growth below 1% per year, with a risk of recession in a number of countries; escalation of tariffs (United States and PRC), strengthening protectionism limits export opportunities; periodic energy price shocks; investment in new technologies declines, widening the technological gap; a threat of long-term stagnation and rising social tensions.

Positive (15%): “investment pivot and reindustrialisation”

Joint EU funds and common procurement mobilise private capital investment; the digital ecosystem develops, and investment in AI and robotisation increases sharply to levels comparable with the United States and the PRC; GDP growth exceeds 2% per year; development of nuclear energy and reconstruction of grids reduce the average cost of electricity; expansion of the single capital market and strengthening of economic integration.

Monitoring indicators:

launch of pan-European investment instruments; reset of tariff arrangements with the United States; dynamics of electricity and energy prices; the EU’s share in global investment in AI and robotics; GDP indicators.

2. Social sphere and migration

Baseline (50%): “controlled adaptation”

The Pact on Migration is implemented with adjustments; migration flows are stabilised; integration outcomes are heterogeneous but improving; migrants’ adaptation to the labour market and retraining for new professions partially compensates for the demographic crisis; the growth of right-wing movements stabilises under the influence of integration policies and economic stability.

Negative (35%): “escalation of the migration crisis”

Legal and administrative failures in the implementation of the Migration Pact; overload of migrant reception infrastructure; growth of illegal migration; strengthening of anti-immigration sentiment, extreme nationalism and Euroscepticism, growth of protest movements, coming to power of right-wing forces, significant tightening of migration policy; the demographic crisis is aggravated by migration restrictions and low birth rates.

Positive (15%): “successful integration”

Successful implementation of the Migration Pact, declining migration flows, predominant integration of immigrants into society, reduction of social tensions and polarisation; growth in employment and productivity, intensive automation and robotisation; support for family programmes and birth rates to mitigate the demographic crisis; social stability and increased trust in EU institutions. Monitoring indicators: pace of introduction of “border procedures”; a set of performance indicators linked to the objectives of the Pact; volume of legal immigration pathways; time to first employment for migrants; dynamics of immigration applications; dynamics of illegal migration; vacancy rates across different sectors of the economy; popularity of right-wing forces; demographic indicators.

3. Security and defence

Baseline (60%): “parallel build-up”

The protracted nature of the war between Russia and Ukraine, long-term support for Ukraine; growth in defence budgets is only partially implemented; integration of defence systems and industry improves; military cooperation among EU countries develops within NATO with an increase in the European share of expenditures; preservation of transatlantic relations with the United States alongside the development of the EU’s own defence industry; hybrid and cyber threats persist, but preparedness and response speed improve.

Negative (25%): “escalation and transatlantic tension”

Escalation of the war between Russia and Ukraine, border incidents and the involvement of EU countries in the conflict; increased frequency of Russian hybrid attacks; partial withdrawal of the United States without compensatory EU defence autonomy; disruptions in supplies and assistance programmes for Ukraine; lagging development of the defence industry and funding shortages.

Positive (15%): “integrated defence and global-level capability”

Conclusion of the active phase of the war between Russia and Ukraine; cessation of Russian hybrid attacks; accelerated development of the defence industry, standardisation within the EU and NATO; establishment of a modern integrated EU defence structure; significant strengthening of EU autonomy in military-technical, intelligence, and cybersecurity domains; strengthening of NATO alongside an independent EU role on the global stage.

Monitoring indicators: dynamics of national and EU defence budgets; share of joint programmes in defence spending; target levels and actual output of armaments; frequency of cyber incidents in energy and transport; dynamics of the use of advanced technologies for defence purposes.

4. EU governance and the rightward “shift”

Baseline (50%): “managed multipolarity within the EU”

Right-wing forces are influential, but workable cross-bloc coalitions are formed; targeted expansion of new decision-making formats in the EU in energy, foreign, migration and defence policy, and technology; decision-making speed increases but remains below that of the United States and the PRC.

Negative (35%): “blocking minority turning into a majority”

Strengthening of right-wing and Eurosceptic forces in governments and the European Parliament; increased use of vetoes and regular blocking of budgets, climate and defence packages; intensification of conflicts over migration, agriculture, “green” regulations, trade barriers, and defence spending; adoption of unilateral national measures; rightward shift and accumulation of a “decision deficit.”

Positive (15%): “functionality 2.0”

A political deal to accelerate decision-making procedures and launch pan-European instruments in defence, energy, industrial policy and technologies: the right supports security and industrial policy; centrists and Greens support “social compensators” and technological modernisation; the left supports the strengthening of social guarantees and state support for employment.

Monitoring indicators: frequency of vetoes; average time required to adopt key decisions; dynamics of the implementation of new decision-making formats; stability of coalitions in the European Parliament.

Conclusions

1. The predominance of the baseline scenario across all four areas implies a decade of low growth and elevated risks if the EU fails to ensure qualitative growth in pan-European financing, deeper capital markets, technological adoption, and higher decision-making speed.

2. A shift to positive scenarios is possible, but the probability is low. It requires synchronised movement at the EU level in finance (common funds and EIB guarantees, joint procurement, deepening of capital markets), technologies (AI and mass robotisation), reduction of energy costs, and integration of the defence industry.

3. Negative scenarios are likely in the event of escalation of the war between Russia and Ukraine, conflicts in the Middle East, the advance of U.S. isolationist policies, failure of migration governance, slowing development of the defence industry and defence integration, or deeper fragmentation at the level of the European Parliament.