Europe, country by country

Europe at a glance

Europe faces a second energy shock, sticky inflation and weak growth while competitiveness reforms advance slowly

Prepared by Valyzer's AI analyst team · sources cited

The US-Israeli war against Iran has triggered what the European Commission calls the second major energy shock to hit the EU in under five years. The IMF's October 2026 outlook sees euro-area growth of 1.1% and inflation of 3.1% this year, and the ECB has raised its deposit rate to 2.50%. Structural concerns persist: the Draghi report (2024) links most of the income gap with the US to weaker productivity and flags regulation as a barrier. Defence investment, simplification packages and strong growth in Spain and Poland are partial offsets.

• Headwind

  Energy shock revives inflation and rate hikes

  The Commission's Spring 2026 forecast cut EU growth to 1.1% for 2026 and raised inflation to 3.1%, citing the Middle East conflict. The ECB hiked twice in 2026, taking the deposit rate to 2.50% on 10 September; its staff project 3.0% headline inflation this year. The IMF warns gas stocks in parts of Europe are below seasonal norms.

• Headwind

  Regulation and the productivity gap with the US

  According to the Draghi report (September 2024), around 70% of the EU-US gap in per-capita GDP at PPP is explained by lower EU productivity, and more than 60% of EU companies see regulation as an obstacle to investment. It counts about 100 tech-focused EU laws and estimates extra investment needs of €750-800bn a year.

• Watch

  Simplification agenda: delivery still being tested

  The Commission says 90% of its Competitiveness Compass flagships draw on Draghi and reported €8.4bn in simplification savings (self-reported, September 2025). In May 2026 the Council and Parliament provisionally agreed to delay AI Act high-risk obligations to December 2027 and August 2028. Measurable effects on investment and innovation are not yet visible in the data.

• Headwind

  Trade friction with Washington persists

  US tariff policy remains fluid. After the US Supreme Court struck down IEEPA-based tariffs in February 2026, Washington rebuilt duties under Section 301 from 24 July 2026. According to Morgan Lewis, combined MFN and Section 301 duties on most EU goods generally will not exceed 10%, while sectoral Section 232 tariffs continue to apply.

• Tailwind

  Defence and investment push, uneven growth

  The Commission reports €150bn in SAFE defence loans and over €1 trillion mobilised across innovation, clean tech and security (self-reported). Growth diverges: the IMF projects Spain at 2.5% in 2026 and the Commission sees Poland at 3.5%. IMF staff estimate that closing structural gaps with the US could lift European productivity by 20%.

• Watch

  Ukraine war and US-led talks

  Russia's full-scale invasion continues, with about one-fifth of Ukraine occupied. NBC News reported on 9 October 2026 that US envoys were hosting a Ukrainian delegation to draft a new unified proposal, while Secretary of State Rubio said prospects for a negotiated settlement do not seem present now. European leaders worry the conflict could spread.

Countries

Each country page cites the sources behind its reading.

• AlbaniaAlbania closes its first EU chapters while a corruption case against a former deputy premier fuels protests
• AndorraAndorra awaits signature of its EU association agreement, with a referendum and housing pressures ahead
• AustriaAustria's three-party coalition sticks to consolidation as growth stays weak and inflation returns
• BelarusBelarus trades prisoner releases for partial US sanctions relief while EU pressure and slow growth persist
• BelgiumBelgium's coalition misses its budget deadline as strikes mount and the deficit stays above 5% of GDP
• Bosnia & HerzegovinaBosnia's 4 October election returns familiar parties as EU funds hinge on stalled reforms
• BulgariaBulgaria joins the euro, but its new Radev government widens the deficit and softens the line on Russia
• CroatiaCroatia still outgrows the euro area, but energy-driven inflation and flat tourism test its model
• CyprusCyprus keeps budget surpluses while the Middle East war, a fragmented parliament and stalled talks cloud the outlook
• CzechiaCzechia's Babiš government loosens budgets and scales back defence and Ukraine support, straining EU and NATO ties
• DenmarkDenmark keeps rare fiscal strength as a new minority government faces Greenland pressure and slowing pharma
• EstoniaEstonia climbs out of recession with defence at 5% of GDP, but deficits and a weak coalition loom
• FinlandFinland is stuck near stagnation, with 10% unemployment, rising debt and an EU deficit procedure
• FranceFrance's minority government targets a 5% deficit for 2027 as growth stalls before the presidential race
• GermanyDebt-financed spending lifts Germany's growth outlook, but inflation and AfD gains test Merz's coalition
• GreeceGreece keeps surpluses and fast debt reduction, but the energy shock and election politics loom
• HungaryHungary's Magyar government unlocks €16.4bn in EU funds but inherits one of the EU's widest deficits
• IcelandIceland votes against reopening EU talks and stays in the EEA as inflation rises and growth slips
• IrelandIreland runs big surpluses, but leans on a few US multinationals as tariffs and energy costs bite
• ItalyItaly gets its deficit under 3% in 2026 but plans more borrowing for defence before 2027 elections
• KosovoKosovo forms a government after three elections, but the presidency stays vacant and EU steps stall
• LatviaLatvia's drone-triggered crisis ends in a decisive win for Kulbergs' United List; coalition talks now decide
• LiechtensteinLiechtenstein's export economy stagnates under US trade barriers while it reviews its place in Europe
• LithuaniaLithuania leads NATO on defence spending and grows fast, but political churn and inflation cloud the picture
• LuxembourgLuxembourg's finance-led economy edges back to growth, but inflation, housing and social tensions test Frieden
• MaltaLabour wins a fourth term as Malta's fast growth leans on costly energy subsidies and imported labour
• MoldovaMoldova advances EU accession talks under a new prime minister as growth slows and inflation rises
• MonacoMonaco nears an exit from the FATF grey list while staying outside the EU association track
• MontenegroMontenegro, the EU accession front-runner, has closed 18 of 33 chapters and targets 2028 membership
• NetherlandsDutch minority cabinet seeks opposition votes for a budget built on defence and fiscal restraint
• North MacedoniaNorth Macedonia's EU path stays blocked by the Bulgarian constitutional dispute despite stronger growth
• NorwayNorway tightens monetary policy and spends more on defence and Ukraine as EU safeguards test the EEA
• PolandPoland outgrows its large EU peers, but presidential vetoes and a 6.5% deficit cloud the outlook
• PortugalPortugal outgrows the euro area with near-balanced books, but energy costs and minority politics test it
• RomaniaRomania faces recession, a deficit above 6% of GDP and five months without a confirmed government
• RussiaRussia's war economy slows to near stagnation as the EU tightens sanctions and Washington eases some
• San MarinoSan Marino moves toward EU association while working to reduce public debt and strengthen its banks
• SerbiaSerbia heads to a snap election on 25 October after two years of protests and strained EU ties
• SlovakiaSlovakia stalls near 0.8% growth as consolidation, car-tariff risk and rule-of-law fights weigh on Fico
• SloveniaJanša returns at the head of a minority coalition, promising less red tape as Slovenia's deficit widens
• SpainSpain's economy outpaces Europe, but a housing crisis has forced a snap election on 29 November
• SwedenSweden's left bloc narrowly won September's election, but a month later no new government has formed
• SwitzerlandSwitzerland debates its EU treaty package while adjusting to lower but unsettled US tariffs
• UkraineUkraine faces a fifth winter of war amid an unconfirmed energy truce and slow EU accession steps
• United KingdomPrime Minister Burnham's government faces its first Budget on 28 October as energy-driven inflation climbs
• Vatican CityThe Holy See under Pope Leo XIV presses for peace in Ukraine and the Middle East as bank profits rise