2025-09-30 21:31:40
From Madrid to Paris to Berlin to Warsaw, the leaves are changing to a glorious kaleidoscope of gold, orange, and red. Families walk the streets, enjoying cafes accompanied by laughing children under the autumn sun.
In Kostyantynivka, in eastern Ukraine, the leaves also glow in vivid colors. But the streets are empty and the predominant sound is Russian artillery. With Vladimir Putin’s troops slowly surrounding the city, only a few of its 67,000 inhabitants remain. Those who have stayed are older, like Grandma Ljuba, who stubbornly refuses to leave. In a note to one of her daughters in Germany, she wrote: “The leaves are as colorful as ever, but the children have all left. Can Europe still hear us calling?”
This question strikes at the heart. Putin’s war is not a distant conflict in faraway Donbas. It is a war Russia has waged and continues to wage on all of Europe — on our security, our freedom, and our future. Look no further than Poland, where Russian drones breached a NATO member’s airspace, or Estonia, where three Russian war planes crossed infringed its territory, or Sweden, where Russia launched attacks on its infrastructure, or in Germany, where Russian agents plotted to assassinate the CEO of defense giant Rheinmetall. That’s not to mention a clear — if as yet unattributed — campaign of airspace incursion against Denmark.
Putin is conducting the largest and bloodiest war in Europe since 1945. His goal is to fundamentally change the European order with a Russia that has no geographical, political, or legal borders. He imagines a Europe without NATO, without the EU, without American security guarantees. A Europe that Moscow dominates, extorts, and subjugates.
That Ukrainians continue to defend their homeland and stand up to the Kremlin’s tyranny is something Putin will never understand. This explains why he has fundamentally misjudged Ukraine — first in 2014 and then in 2022 when Ukraine successfully repulsed much of Russia’s full-scale invasion.
In fact, militarily, Putin has been largely unsuccessful. Russia’s advance on Kyiv in the early days of its invasion collapsed after 72 hours, and the subsequent Ukrainian counteroffensives near Kharkiv, Kherson, and in Crimea showed that Russia is vulnerable.
Putin misjudged Ukrainian resolve, but he also has placed a strategic bet on European weakness, fear, and indecision. He launched an information war against the West — feeding a powerful narrative that Russia is unstoppable. He believes a profoundly risk-averse Europe prefers its autumnal walks and cafes to standing up for its freedom.
More than three years into the war, the European strategy of giving Ukraine only enough aid to hold out “as long as necessary” is militarily inefficient, politically risky, and economically the most expensive option. This approach prolongs the war at the expense of both Ukraine and all of Europe, while giving the Kremlin more time to sow further division across the continent as it pushes and tests our eastern flank.
To those who say there should be a diplomatic solution, there is no compromise to be had with Putin. There is nothing he has ever done that would ever indicate he would capitulate or bow to anything other than overwhelming force. The only solution is for Europe to defeat him. Our continent must finally and fully militarily equip Ukraine and take additional measures to put military, economic, and financial pressure on Russia. If Putin only respects and responds to power, Europe must respond in kind.
Given its vast military power and the importance of the transatlantic relationship, the United States must and will continue to play a key role in the war in Ukraine and in European security.
But we cannot afford to wait for Washington to decide what we will do, and when we will do it. There is no more time to waste. Putin is counting on Europe to waver. We must prove him wrong by undertaking a comprehensive plan to beat Moscow.
This European roadmap is realistic and can be implemented immediately. We should finally abandon the illusion that time is on our side. Europe cannot defeat Putin with strongly worded condemnations, stilted political communication, and bureaucratic policy management. Every month we hesitate costs human lives, destroys infrastructure, and weakens Europe’s credibility.
If we act now, we can turn the situation around, and we can do it before the end of this year. If we act boldly and quickly, we can lay the foundation for a just and lasting peace.
In that case, Grandma Lyuba from Kostyantynivka and her friends could see her children and grandchildren return, life and hope return to her city, and growth, innovation, creativity, and prosperity replace brute force and mindless destruction.
That is the free Europe we want — and that we can win now.
Nico Lange is a Senior Fellow at CEPA. This article is a summary of his speech at the opening of the 2025/2026 winter semester at the Swiss Institute for International Studies in Zurich. He is also a Senior Fellow at the Munich Security Conference and teaches at the Chair of Military History at the University of Potsdam and at the Hertie School of Governance. Lange served as Chief of Staff at the German Ministry of Defense from 2019-2022.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
Cooperation and Competition
The post Ukraine Asks: Europe, Can You Still Hear Us? appeared first on CEPA.
2025-09-30 21:00:00
The United States and Europe confront a common challenge: staying ahead of China in the global innovation race. But the US has moved far ahead in key digital technologies while Europe lags.
The Trump administration recognizes the key role of technology for geopolitical competition. It has made US global leadership on tech and artificial intelligence a core pillar of its national security agenda — most recently in the AI Action Plan.1 As the US doubles down on tech innovation, Europe risks not just lagging in the short term, but stagnating for the long term.
European decline is not in the US national security interest. The continent remains far and away the US’s largest trade partner, with $1.3 trillion in goods moving across the Atlantic Ocean in 2023, almost 40% more than US trade with China.2 US investment in Europe and European investment in the US run into the trillions. The US needs a prosperous Europe — its large market, investment, innovation, and talent — to compete with China. US companies benefit from access to the continent’s 450 million consumers, key to the US trade surplus of $71.1 billion in services.3
As digital services make up an ever-growing portion of this unparalleled economic partnership, a Europe that lags in tech innovation will be neither economically competitive nor a good trade partner. If Europe can take the hard and necessary steps to accelerate its competitiveness in tech to complement areas where the US lead is already far ahead, it will be a stronger partner to the United States. Growing divergence, however, will only benefit Beijing’s global ambitions to create and control the global tech infrastructure. Going it alone, for either the US or Europe, is simply too high a risk for both.
Europe still has much to offer to the US. European companies will not compete directly with the US on scale, but European researchers and innovators have made significant technological breakthroughs that have benefited US tech growth. A Danish software engineer built Google’s Chrome browser engine, while a Hungarian engineer created Microsoft Office.4 European talent invented video communications. European companies and research institutes dominate lithography imagery, which is needed to make the most sophisticated semiconductors. Quantum computing? Europeans lead the quantum efforts for several major US players.
The benefit goes both ways: US tech companies are some of the largest foreign investors in Europe, with direct investments of $113 billion in the information sector and $29.7 billion in hardware manufacturing in 2024.5 They play a key role in delivering services, hardware, cloud infrastructure, and more. Amazon employs more than 200,000 Europeans and Apple supports more than 1.7 million jobs.6 The US hyper-scalers are spending heavily to build data centers in Europe. Earlier this year, Google agreed to invest billions in Poland to support tech innovation and training, artificial intelligence (AI) integration, and cybersecurity — amounting to an estimated 8% increase in Poland’s gross domestic product (GDP).7
Europe and the US not only need each other, they share the same analysis of the key strategic questions. They agree that technology represents the key front line of both the economic and security future. Governments no longer drive innovation: Technology companies power productivity growth. As the Trump administration deregulates and stakes a claim for the future of technology, Europe is moving to pare back and simplify its extensive digital regulations.8.
Most important, the allies share a common assessment that dependence on China threatens Western tech leadership. Brussels has moved to impose tariffs on the import of Chinese electric vehicles and wean itself from Chinese technology in its telephone networks. Washington is imposing strict export controls on key technologies to China. DeepSeek, a Chinese artificial intelligence start-up, shook the assumption that the US will continue to lead. President Trump called it “a wake-up call.”9
The key to winning the tech race is the Europe-US alliance: A partnership between the US and Europe is the only way to provide independence from China. The giant, integrated transatlantic economy gives the allies a competitive advantage.
But the US and Europe have yet to set up a competing agenda to Beijing’s “Made in China 2025” plan for its industrial ambitions. Europe must act fast to double down on innovation and the US should take advantage of the opportunities to build strategic complementarity with Europe. If they do so, both sides will profit — and importantly, it will be the US and Europe that set the rules of the new tech-based order rather than China. It is time to think long term but act swiftly.
This paper outlines a pragmatic roadmap for how the US and Europe can maximize their joint comparative advantages to ensure that democracies define and build the future digital order.
Below are a few key challenges on which Brussels and Washington can quickly find common ground.
The US has to restore trust that it will not pull a “kill switch” and block transfers of cutting-edge tech to Europe. President Trump’s AI Action Plan goes some way to addressing these concerns. It promotes export to allies but also calls for better export control enforcement on crucial components. The US wishes to “align protection measures globally.”1 These measures should be managed in a way that allows all European countries to continue to benefit from US tech.
Europe, in turn, should prioritize the adoption of a unified export control framework for critical and emerging technologies. Under present rules, Brussels can only advise national governments, leading to long, drawn-out negotiations and inconsistent implementation. End-user controls should be harmonized, creating a single Europe-wide control list of technologies.
“Good” rules and existing agreements should be kept, notably the transatlantic Data Privacy Framework, which allows seamless transfer of private data across the Atlantic Ocean. That road to agreement was long and painful. Europe’s highest court has ruled the framework is “adequate” and data transfers can continue. Both sides should refrain from any legislative changes that might undermine the framework and fight to maintain it if it is challenged again. The free flow of data across the Atlantic Ocean is fundamental to the Trump administration’s goals of AI innovation and strong economic security. The current framework provides legal certainty not just for tech, but for other critical sectors such as finance, health care, and hospitality.
President Trump’s AI Action Plan is “opportunity first.” AI holds tremendous potential for good, and Americans and Europeans agree that it presents risks. The transatlantic allies should work together. The AI Action Plan, which calls to export to allies and to “align protection measures globally,” can help.
At the same time, access to both European and US AI ecosystems must be scrutinized for national security risks. Many Western companies continue to conduct AI research in China and Russia, and academic collaboration continues with limited constraints, posing ongoing, serious research security risks.10
The National Institute of Standards and Technology’s Center for AI Standards and Innovation should cooperate with European peers. The Trump administration emphasizes innovation and competitiveness. Without compromising its ambitions to develop safe, ethical AI, Europe should adapt its implementation strategy for the AI Act to ensure the right tools are in place to enable smooth, effective compliance.
Europe and the US are investing billions in quantum computing, a paradigm-shifting technology. Quantum will unlock solutions to present unsolvable problems, such as drug development and fusion energy.11 Quantum could also undermine present encryption security.
Although the US is ahead with private-sector funding, Europe ranks second only to China in public quantum investment, with nearly €7.7 billion committed.12 Quantum facilities in Finland, France, and the Netherlands are first class.
China, too, is prioritizing quantum technologies. It is preparing to launch new experimental quantum communication satellites.13 The first long-distance quantum-secured communication route opened last year between Shanghai and Beijing.14
Before quantum is deployed widely, the allies should discuss their respective approaches. The US is advancing the standardization of encryption algorithms resistant to quantum hacking.15 Washington should coordinate with European standards bodies.
The US has taken a strong lead in building reusable rockets and low-orbit satellite communications — two key technologies that Ukraine is leveraging on the battlefield against Russia through Starlink. This significant advantage could be lengthened by collaborating with Europe.
Europe brings significant capabilities, including the Galileo navigation system, the Ariane rocket launch program, and Copernicus Earth observation satellites.16 Coordinated transatlantic investments in satellite constellations, launch infrastructure, and space debris mitigation can support secure communications, navigation, and climate monitoring.
Without collaboration, the risk is that Europe will pour its energies into space projects that overlap with American plans. It will be much more productive to work together than to compete against each other.
The US and European Union (EU) must urgently develop a joint strategy to counter China’s chip ambitions. The Netherlands’ ASML holds a monopoly on ultraviolet photolithography machines — critical for producing the world’s most advanced chips — while the US leads in chip design. Aligning the design strengths of US companies with the chipmaking equipment dominance of European firms is economically strategic and essential for national security.
The United Kingdom (UK) should be included in any chip pact. Arm, born in Cambridge, revolutionized the design of power-efficient chips that run all our mobile phones. The bottom line is that Europe cannot do without US- and UK-designed chips, and the US cannot live without access to European chip-imaging prowess.
Beyond chips, the US and Europe have made progress in recent years in ripping China’s Huawei out of their telecommunication networks and promoting the use of trusted vendors.17 They should extend that support to the provision of subsea and fiber optic cables and the development of fifth- and sixth-generation 5G and 6G networks, both in their home jurisdictions and third countries, while working to prevent untrusted vendors from accessing those networks.18
A June 2025 NATO Summit produced an agreement to spend 5% of GDP on defense, offering new pathways for partnerships with US and European tech.19 The defense-spending target comprises two tiers: 3.5% for hard defense and 1.5% for broad security-related investments. Within the 1.5%, allies agreed to prioritize critical infrastructure protection, cyber defense, and information technology modernization. NATO also released a Rapid Adoption Action Plan, committing allies to “expedite technology adoption procedures and allocate adequate resources to that end.”20.
The US and Europe must deepen collaboration between their respective defense industries. European firms such as Germany’s Rheinmetall, France’s Thales, and the UK’s BAE Systems are global leaders in next-generation defense systems. Structured research and development (R&D), shared procurement, and interoperability would enhance military readiness. US tech companies have strong expertise in cybersecurity that NATO members can leverage as part of the 1.5% security-related investment. A transatlantic defense partnership would reduce R&D duplication, boost production, and ensure that democracies — not authoritarian regimes — lead the evolution of military technologies.
The allies need to coordinate investment to offer a compelling, values-driven alternative to China’s Belt and Road Initiative. They need to pool development finance and trade policy and leverage private sector capacity. A key opportunity is critical minerals, which today represent a strategic vulnerability for the transatlantic community. China’s dominance must be addressed.21 If it is not, Beijing will be afforded a giant opportunity for strategic advantage.
Although the Minerals Security Partnership includes the United States, Europe, and 13 other countries, it is making slow progress.22 A jolt is needed. Together, the allies should launch a “Free Road Initiative.”23 This could help global partners develop and diversify their supply chain options. One flagship project, the Lobito Corridor in Africa, is an initiative to secure the flow of critical minerals and offer minerals-rich countries alternatives to Chinese investments.24 A second flagship project could be the India–Middle East–Europe Economic Corridor (IMEC), which promises to secure and diversify supply chains with the Middle East and India, important trading partners for Europe and the US.25
Brussels has made no secret of its desire to regulate the digital world, only to realize that the cost of its rules was hobbling its tech industry. Some European tech companies now say they spend up to a third of engineering resources on complying with the digital rulebook. The “Competitiveness Compass,” a European Commission plan to boost European productivity, represents a positive plan for prioritizing growth.26
But it remains unclear just how far Brussels is willing to go. There is talk of “pausing” the AI Act, but not of revising or junking it. The EU can, and should, learn lessons from the US’s AI Action Plan. The Commission has several new laws, implementing codes, and guidelines in the pipeline. A soon-to-be-proposed Digital Fairness Act could add a new raft of obligations on digital platforms, putting them at a disadvantage to brick-and-mortar competitors.27 The EU should get real on what regulation can achieve and put down the quill.
Enforcement and implementation of the main digital regulations — the General Data Protection Regulation (GDPR), the Digital Markets Act (DMA), and the Digital Services Act (DSA) — have proven patchy.28 Compliance remains challenging.
A new US-EU trade framework has been agreed. It is a start, as it prevents a trade war. Against this new backdrop, the EU should consider the use of the penalties it has prescribed in the DMA and DSA very carefully. From the EU’s perspective, the primary goal of its new digital rules is to ensure that digital products released on the European market are safe, ethical, transparent, and trustworthy. Yet, regardless of the motivation, both the DMA and DSA are deeply unpopular in Washington and seen as a direct attack on US firms. Issuing massive fines against US tech companies will go down badly. Similarly, those countries with digital services taxes (DSTs) should consider the long-term value of such taxes. Washington views EU digital rules as a factor in the trade relationship. Fines and taxes will not make European tech firms more competitive but will antagonize the US.
To meet its own digital goals, Europe faces a classic “buy or build” scenario. “Digital sovereignty,” if defined as building up European capabilities, can be a good outcome. If it becomes a protectionist creed that excludes non-European suppliers, it will hold Europe back.
Europe can and should endeavor to improve its secure digital infrastructure, address what French President Emmanuel Macron called “shameful strategic dependencies,” and reduce reliance upon the US overall.29
It is impractical for Europe to digitize without working with US companies. Open-source models should be prioritized, as the US has done in its AI Action Plan. Significant investment in tech will be required — up to €800 billion, according to former Italian Prime Minister and European Central Bank Chief Mario Draghi.30
Europe knows the steps required to restore competitiveness, but has been slow to start the work. Recent announcements, such as the Competitiveness Compass and the new scale-up fund, are promising. The Commission has plenty of recommendations from reports from Draghi and Enrico Letta, another former Italian prime minister.31 Stand-out items include the following:
Europe should approach its challenges with a sense of urgency but not in a blind panic. Much remains to play for in AI, quantum, and other emerging technologies.
The new US-EU trade framework, albeit with a high tariff threshold, is to be welcomed. Tariff threats undermined US demands for Europe to step up spending on its own defense. The tariff threats also hurt US tech leaders and encouraged Europeans to seek domestic alternatives.
US tech has engaged with the US administration on a range of issues: the Stargate Project and AI innovation, security and export controls, regulation on the use of data, and content moderation.32 Most, if not all, US tech firms want to see an EU digital single market come to fruition.33
If the transatlantic trade war flares up again, tech firms would be big losers. It is to the benefit of US tech leaders to advocate for policies that defend their interests without putting them at the center of any potential European backlash.
The transatlantic alliance represents a strength, providing strategic depth in competition with China. Tension is a feature of any long-term relationship, and the transatlantic relationship has not always seen plain sailing. The Suez Crisis, France’s departure from the NATO command, the invasion of Iraq, and the Edward Snowden affair all caused turbulence. Yet in every case, the allies have found a way forward.
Right now, patience is required. There is a new trade framework with many details to be worked out. It is still comparatively early days in the presidential cycle and the new European Commission’s term. Both need time. The war in Ukraine continues. The Middle East burns. President Trump and his administration have yet to stabilize their position on key policy areas. The European Commission is just formulating its competitiveness plans.
China aims for tech dominance — to reinforce dictatorial control. The National Endowment for Democracy calls this goal “data-centric authoritarianism.”34 Instead of using AI and other technologies to improve lives, Beijing leverages tech to stifle dissent. AI, biotech, quantum, and digital currencies give the Chinese Communist Party unprecedented power to monitor its population.
The allies must respond. Although little chance exists of another formal transatlantic tech forum like the Trade and Technology Council, other venues could offer opportunities to counter China’s growing technological influence. France hosts the 2026 Group of Seven (G7) presidency. This could ignite a clash between French demands for digital sovereignty and Trump administration fears that this will harm American interests. Instead, the G7 could prioritize aligning against China’s growing influence.
If the US and Europe do not collaborate, we risk seeing a splintered tech world with siloed regulatory regimes, conflicting technical standards, and geopolitical walls around data, computer power, and workforce. This would slow innovation and increase uncertainty for companies and governments. It would allow China to race ahead, leaving the West chasing behind.
This report is the product of a special initiative led by members of CEPA’s International Leadership Council (ILC), a non-fiduciary, high-level advisory body that guides CEPA’s mission and strategy. The content of this report does not necessarily reflect the specific views of any individual ILC member or the individuals listed below.
CEPA is grateful for advice and strategic guidance from:
Carl Bildt, Prime Minister, Kingdom of Sweden (1991-1994); Minister for Foreign Affairs, Kingdom of Sweden (2006-2014); Member, International Leadership Council; Co-Chair, Special Project on a Roadmap for Europe-US Tech Cooperation, Center for European Policy Analysis;
Anja Manuel, Executive Director, Aspen Strategy Group and Aspen Security Forum; Co-Founder and Partner, Rice, Hadley, Gates & Manuel LLC; Member, International Leadership Council; Co-Chair, Special Project on a Roadmap for Europe-US Tech Cooperation, Center for European Policy Analysis;
Eva Maydell, Member (EPP-Bulgaria), European Parliament
Molly Montgomery, Director, Public Policy, Meta; Member, Board of Directors, Center for European Policy Analysis
Dr. Alina Polyakova, President and CEO, Center for European Policy Analysis
With special thanks to Gen. John Allen, Ylli Bajraktari, Karan Bhatia, Kaitlyn Garman, James Lewis, Nicklas Lundblad, Ronan Murphy, and Elly Rostoum.
CEPA is a nonpartisan, nonprofit, public policy institution. All opinions expressed are those of the author(s) alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
The post Tech 2030: A Roadmap for Europe-US Tech Cooperation appeared first on CEPA.
2025-09-30 01:23:55
As economic growth stalls and revenues decline, Moscow is no longer able to pump up the fiscal stimulus that fueled earlier wartime expansion, instead embracing austerity measures that threaten to further strangle the civilian economy.
While the budget figures are not final — the fiscal plan requires parliamentary approval — Moscow’s financial strategy for the fifth year of war is unmistakable.
Amid slower growth and lower revenues, the Kremlin will attempt to muddle through without major expenditure increases, instead passing the war’s costs to the whole of society.
For three years, rising fiscal spending stimulated both economic growth and climbing incomes. However, due to physical constraints including labor force shortages, sanctions, and limited production capacity, this high government spending has also fueled inflation, which the Central Bank is combating with prohibitively high interest rates.
This policy has yielded results — inflation slowed to 8.1% in August, albeit while remaining higher than the Bank of Russia’s target. But the side effect of monetary tightening is the suffocation of lending, both corporate and private, notably in the civilian sector. The high rate and overly high government spending became a means of suppressing civilian demand and of transferring resources towards the military economy.
The economy, with the anticipated exception of the defense industry, is grinding to a halt. The new economic outlook reflects this reality: the economy is entering stagnation.
Officials now expect 1% growth this year, down from the 2.5% predicted in April. For 2026, the projection is 1.3% rather than 2.4% from the previous forecast. Expectations for investment, real incomes, and industrial production have also been cut. A lower inflation forecast is theoretically good news, but it has been achieved largely by removing budget stimulus and imposing high interest rates. Thus, prices are stabilizing due to demand suppression, not increased production.
A slowing economy combined with low oil prices and a strong ruble continues to limit budget revenues, which in turn calls for fiscal frugality.
For 2026, the government expects to spend 44.07 trillion rubles ($530bn). Accounting for inflation, forecast at 6.8% by year-end, spending will be virtually unchanged from 2025 (41.47 trillion rubles) and just 2% higher than what the government projected last year for 2026 . While keeping spending under control represents a significant achievement for a wartime government’s bookkeepers, it’s insufficient to balance the budget.
Revenue, meanwhile, is set to fall in both nominal and real terms, compared to both 2025 projections and estimates from a year earlier. The government expects to bring in 40.28 trillion rubles ($482bn at current exchange rates), compared with 41.84 trillion rubles envisaged for 2026 a year ago.
The Finance Ministry expects a 2026 fiscal deficit of 1.6%. This may prove overly optimistic.
Over the past two years, the finance ministry has failed to keep deficits within its original limits. For instance, this year the government initially expected a shortfall of 0.5% of GDP. By June, that was revised upward to 1.7%, and this week’s forecasts show plans for a year-end deficit of 2.6% of GDP, with no guarantee the final figure won’t be worse.
One of the finance ministry’s most important tasks is maintaining a balanced primary budget, meaning basic expenditures (official salaries, social payments, defense, investment) minus debt servicing are fully covered by revenue. Since no external revenue growth is expected, and drastic spending cuts are politically impossible, the government has no choice but to raise taxes to escape a significant surge in high-rate borrowing.
The government proposes increasing sales tax (VAT) from 20% to 22%. Such a hike could generate approximately 0.5% of GDP in additional budget revenues, or 1.2 trillion rubles annually. Because this is a sales tax, any increase falls primarily on consumers, since businesses pass higher costs to shoppers. The bright side is that the VAT rise represents a one-time hit rather than a source of prolonged inflation, potentially enabling the Bank of Russia to cut rates and provide oxygen to suffocating businesses. However, for some businesses, this relief wouldn’t be enough to survive, as the government plans to hit them with additional taxes.
Citing the need to curb tax evasion, the government wants to raise taxes on small and medium businesses by lowering the VAT revenue threshold from 60 million to 10 million rubles annually. In effect, all small businesses will face higher taxes. The threshold will impact any business earning more than 800,000 rubles ($8,500) monthly — roughly what a street kebab stall might earn — making them liable for the 22% VAT rate instead of the current simplified 6% tax rate.
However, even this is not enough, as the government would need to borrow more than it had expected a year ago and at higher rates.
The combination of higher taxes and increased borrowing strikes the economy from two directions. Business faces a direct hit from rising rates and fees, plus an indirect blow from the crowding-out effect that occurs when the state actively borrows money domestically, thus competing for bank loans and investments. The public also faces a double bind: the tax burden rises while budgetary priorities shift even more toward the military. Individuals and businesses pay more to the state but receive fewer or lower-quality services in return. All resources continue flowing into defense, starving the civilian economy.
The government cited military needs to justify tax increases. On the surface, military spending appears under control. In 2026, the defense budget is set to fall for the first time since the Ukraine invasion, from 13.5 trillion rubles ($161bn) to 12.93 trillion rubles. This roughly aligns with last year’s plan, which projected expenditures of 12.8 trillion rubles.
However, spending on national security and law enforcement is set to rise from 3.56 trillion rubles in 2025 to 3.91 trillion rubles in 2026. As a result, combined defense and national security spending will remain at record levels of just below 40% of federal spending and roughly 7% of GDP.
There are several explanations for the apparent stability in defense spending:
As Russia enters the fifth year of its war in Ukraine under Western sanctions, the government is attempting to stabilize its war-ravaged public finances not through economic growth or market liberalization, but by increasing revenues. The budget will be supported by tougher taxes, reallocated security spending, and expensive borrowing.
The economy is now moving into a protracted low-speed regime where the state consumes more than it can afford, the military-industrial complex operates at the limit of its workforce and production capacity, and civilian production is constrained by higher taxes and suppressed demand.
Tax increases confirm that the Kremlin is preparing for long-term military financing, for which consumers are beginning to pay, and on which the military-industrial complex continues to flourish.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA), specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
More on this and other aspects of the Russian economy in a weekly summary produced by the independent publication, The Bell.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
Cooperation and Competition
The post The Kremlin to Russian Consumers — Pay for Our War appeared first on CEPA.
2025-09-30 00:46:09
In any age, it’s hard for a European party to maintain a parliamentary majority without vote rigging (see Russia and Belarus) and vast expenditure on electoral sweeteners. Most don’t go that far.
In early 21st-century southeastern Europe, it’s something of a miracle to hold onto power, especially when a wealthy foreign state and its spies are bankrolling the opposition. Step forward, President Maia Sandu and her PAS party, who achieved exactly this unexpected result in the September 28 parliamentary election.
The vote highlighted both the country’s fragility and its resilience. Voters delivered an unanticipated outcome by returning PAS won with 50.2% of the vote and 55 of the 101 parliamentary seats, a loss of eight. Kremlin-backed proxies and their allies together gained around 43%, enough to illustrate both the divides within Moldovan society and the possible pitfalls of the future. Because if one thing’s clear following the ballot (other than the audible sighs of relief from Western Europe), it’s that Russia will never end its campaign to suck Moldova back into Eurasia.
For the Kremlin, Moldova is a strategic asset far out of proportion to its size and population of just 2.4 million. Geopolitically, it is a pressure point on Ukraine’s Odesa region and a buffer separating Russia from the European Union (EU). Politically, instability in Moldova sustains a grey zone on Europe’s border, preventing the EU from consolidating its eastern neighborhood.
The failure of Russia’s allies to dominate the vote also shows that Moldovan society is not wholly the captive of Kremlin narratives.
Russia’s 1,500 troops in the breakaway pro-Russian republic of Transnistria and the 20,000 tons of Soviet-era ammunition at Cobasna remain enduring vulnerabilities. Even if militarily isolated, the local garrison forces every Moldovan government to weigh its policies against the risk of escalation. Transnistria also ties down Ukrainian forces along its southwestern flank and provides Moscow with a platform for intelligence and influence operations.
Even so, the fact that the PAS won 30% of the vote in Transnistria is notable. Moscow has repeatedly thrown the region under the bus when it served Russian interests (as with the severing of gas supplies last winter). The EU helped keep Transnistrian homes heated, and it seems at least some local people took notice.
The elections underscored Moscow’s reliance on covert action. Moldovan authorities, backed by Western intelligence, exposed several Russian-linked networks during the campaign. Dozens of individuals trained abroad were detained on suspicion of preparing violent protests to coincide with the vote. These operations are run by Russian intelligence officers holding Moldovan or Romanian passports, often operating from Transnistria or northern Moldova. They demonstrate how Moscow integrates its limited military footprint with intelligence-led destabilization.
The overlap of crime, politics, and business remains central to Russia’s influence. Ilan Șor epitomizes this nexus. Convicted in Moldova and sentenced to a 15-year term for a $1bn bank theft, sanctioned by the US, EU, and the UK, Șor now resides in Moscow. From there, he launched the “Victory/Pobeda” bloc, an umbrella for successor parties such as Șansă, Renaștere, and FASM — all sanctioned by the EU for undermining democracy. Its politics are flaunted by its symbol, which includes a star with a hammer and sickle, and it is now the main opposition bloc with 24% support.
Șor’s companies, tied to Promsvyazbank, closely tied to Russian Ministry of Defense bank, he has funneled millions of dollars into Moldovan politics and experimented with ruble-denominated stablecoins and billions in crypto transactions to bypass sanctions. These mechanisms both bankroll political activity in Moldova, but also sustain Russian trade in restricted goods.
Other figures highlight the same pattern. Grigory Karamalak (“Bulgar”), sanctioned for the theft of state funds and other illegal activities, a notorious crime boss and now vice-president of Russia’s wrestling federation, deploys diaspora organizations and sports events as Kremlin influence vehicles. Former President Igor Dodon, despite corruption charges, continues to liaise with Russian political technologists. Exiled oligarch Vladimir Plahotniuc too, recently detained in Greece, maintains networks that intersect with Moscow’s structures. The elections revealed how these entrenched actors continue to shape Moldova’s political economy.
Moldova is moving out of Russia’s orbit. It has sharply reduced dependence on Russian gas since 2022, blunting one of Moscow’s most potent tools. And the exposure of Russian destabilization plots suggests improved resilience in Moldovan institutions, supported by Western assistance. The EU is sending its largest-ever aid and loan package totaling at least $2.2bn, and while it will take time, the help will ultimately have an effect. These positives matter: they show that Russia’s toolkit is not irresistible, and that Moldovan society retains a significant pro-European core.
The challenge now is to build on the success of the pro-European movement and to help Chişinău resist Moscow’s hybrid arsenal. In Europe’s current confrontation with Russia, Moldova’s trajectory is a bellwether; PAS’s success gives good reason for optimism.
Katia Glod is Deputy Head of Foreign Policy at New Eurasian Strategies Centre and is a Fellow with the Center for European Policy Analysis.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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2025-09-29 21:23:45
A Russian land grab in Estonia in 2028 would destroy NATO, argues the newly published, best-selling, and widely reviewed“If Russia Wins” by Professor Carlo Masala.
I share his vividly depicted worries about NATO’s disunity. This (or indeed a future) US administration might hesitate to go to war with Russia over a small, messy territorial incursion in Europe. Under future far-right governments, France and Germany might decide against a military response to a Russian invasion of an allied country.
But the opening scenario is wrong. If Masala is looking for a pushover, he should not choose well-armed, battle-ready Estonia, whose citizens, more than most other Europeans, are willing to fight for their freedom. It is similarly lazy to assume that Russia and Belarus could easily close the land-bridge between Poland and Lithuania, the Suwałki-Alytus corridor, or simply annex the “Russian-speaking” eastern Latvian city of Daugavpils.
Instead, Masala should focus on complacent, dislocated countries farther west. I have just come back from Copenhagen, where mysterious drone sightings over airports and military installations in recent days prompted alarm and disruption. The authorities have now banned all drone flights for the coming week, when Denmark is holding an informal European Union summit and then a meeting of the European Political Community, a continent-wide grouping that includes non-EU Britain, Turkey, Ukraine, and Norway.
The visitors will have plenty to discuss, not least with their hosts. The Danish prime minister, Mette Frederiksen, made a sombre address to the nation on Friday, September 25th, saying that the country was under attack. She did not directly blame Russia, but said that it was the one country that “primarily” threatens European security.
Denmark has a stellar record in supporting Ukraine and is belatedly splurging money on rearmament. But its state institutions have a long way to go to rebuild the necessary security culture. The Prime Minister, in her speech, sounded not only angry with the attackers, but also exasperated at her own country’s response.
I can see why. The most recent news item on the main police website concerns two lost dogs. I visited an obvious source of potential clues, Copenhagen’s main plane-spotters’ hangout, the Flyvergrillen diner on the airport perimeter. Nobody there had yet been contacted by the authorities. I called the police to ask how the investigation was going: “It’s 1600 on a Friday. Everyone’s gone home,” I was told. Not quite what one would expect in a country that, according to the transport minister, has suffered its worst airspace violation since the Second World War.
Frederiksen warned of more such attacks, of different kinds, in future, in Denmark and elsewhere. As she rightly pointed out, their real aim is to create “insecurity and division”, to destabilise society and sow mistrust. Russia does not need to defeat NATO militarily if it can use “hybrid” (sub-threshold) attacks to create crippling inconvenience that confuses decision-making and corrodes confidence. The natural prudence of our societies turns into a vulnerability: once the public is sufficiently alarmed, just planting rumors can be enough to close an airport.
But Frederiksen’s speech had a big hole. She made no mention of deterrence. Just shooting down drones in the future will not work. Russia will simply switch tactics. As the security guru Julian Lindley-French tells me, our aim should be to create crippling inconvenience for Russia, planting uncertainty in the minds of Kremlin decision-makers. The more they worry about the duration, extent, scope, and frequency of our response, the more hesitant they will be.
Frederiksen is wisely asking Ukraine for support in countering drone warfare. She should remember that Denmark’s formidable, battle-hardened allies play offense, too.
Edward Lucas is a Senior Fellow and Senior Advisor at the Center for European Policy Analysis (CEPA). He was formerly a senior editor at The Economist. Lucas has covered Central and Eastern European affairs since 1986, writing, broadcasting, and speaking on the politics, economics, and security of the region.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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2025-09-29 21:16:17
Orbán’s grip on power, which he has exercised since 2010, is weakening, even as the political stakes rise. Hungarians, and capitals across Europe, are asking how far he will go to protect his hold on power.
The mounting opposition to Orbán’s rule became clear in June, when 250,000 people flooded the streets of Budapest to join Pride celebrations in defiance of a government ban.
It was the largest demonstration Hungary had seen in years and a massive act of civil disobedience. True, the protest underlined the largely urban nature of the anti-Orbán opposition, but its sheer scale indicated growing popular frustration. It highlighted one other important thing that may prove critical in the unfolding story — the Hungarian premier, unlike some of his illiberal allies in places like Georgia, cannot easily turn to violence to repress dissent.
Not only does he lack the necessary support from the police and other state organizations that might use violence against the people, but non-violence has been a legitimizing factor for his rule. By upholding non-violent “soft power” as a means of measures of control, Orbán demonstrated stability and order, and has maintained the pretense of a “democratic” system. However, if he breaks that boundary by using force, his party would risk hemorrhaging support.
The prime minister has other problems too. His popular opponent, Péter Magyar, seeks to draw support from Orbán’s traditionalist rural heartlands. He leads in polls partly because he wins wide appeal (he did not appear at the Pride festival, for example, and is careful not to seem overly liberal on a range of issues).
While Orbán declares he is building an illiberal state, his politics include the acceptance of elective, representative government. This remains central to his approach and is essential as evidence that he and his Fidesz party answer to the people. And it’s hard to argue otherwise — he won 53% of the popular vote on a high turnout in 2022, a result Orbán declared as “big enough to see from the Moon… and Brussels.”
And yet, Hungarian illiberalism creates democracy with a different face. Fidesz has used its constitutional majority to manipulate institutions and significantly reorder media, business, and political rules in its favor. It has also amended election laws more than 30 times since 2011 to paralyze opponents and confuse voters.
But with Magyar now ahead in the polls, there must be a risk that even a skewed system (Freedom House described the 2022 elections as “severely flawed”) will fail to deliver for Orbán.
Aware of the risk, the premier is now doubling down on efforts to control dissent. One method of control has included the degradation of independent media through financial and legal threats.
Fidesz now describes a world filled with enemies, including “communists”, “globalist liberals”, and “migrants”. Due to Hungary’s close ties with Russia, Ukraine, and its President Volodymyr Zelenskyy, have been portrayed as a threat to Hungary’s national sovereignty to increase opposition to Ukrainian EU membership.
While such campaigns have found success in the past, they have been unable to halt Fidesz’s eroding popularity among Hungarian voters this time.
Declining public services, rising economic hardship, mounting sovereign debt, rampant corruption (Hungary has been the EU’s most corrupt country for three years running), as well as seemingly endless conflict with the EU and Hungary’s main European allies, have led growing numbers of Hungarians to lose faith in Orbán’s system.
Magyar and his Tisza party look likely to threaten Fidesz’s supermajority in April. Vox Populi, which compiles polling institute data, showed Tisza in the lead in September by anything from 4% to 14%, leaving Orbán and his party in an uncomfortable position just seven months before voting.
Orban will have to navigate uncharted territory to win an election that threatens his power in Hungary and thus his influence in European politics, both cultivated through autocratic and opportunist transactional politics.
There are signs he is preparing for a brutal campaign. He replaced András Gyürk, his chief campaign director, who had served him since 2004, with his political director, Balázs Orbán (not related), who has a reputation for having close contact with US Republican circles.
In past elections, Arthur Finkelstein and George Birnbaum carried out polling and oversaw Fidesz’s campaigning. Orbán is now collaborating with a new generation of “Finkelstein” strategists, including Donald Trump’s pollster John McLaughlin, and aims to tap into the latest campaign techniques used in the US presidential election .
Orbán has vast institutional, financial, and political power, but all the advantages of electoral engineering, massive financial resources, and campaign technology may not be enough to confront the challenges of the upcoming election.
The government will also deploy the tried and tested technique of spending splurges to convince the electorate to stay loyal. His government is distributing massive welfare payments despite soaring debt. At the same time, Fidesz is threatening deeper institutional repression of civil society organizations and independent media by submitting a new bill which would allow for the blacklisting, imposition of financial restrictions, and potential closure of media outlets and civil society organizations receiving foreign funds. Fidesz has also embarked on an incessant smear campaign against Ukraine and Tisza.
With its prime minister backed into a corner, Hungary faces a bitter campaign. And still the big question lingers — if he does lose, will Orbán hand over the keys to his office or launch a new campaign to claim the vote has been unfair?
Sasha Magnani is a Democratic Resilience Intern.
Zsuzsanna Szelényi is Director at the CEU Democracy Institute and a former Hungarian MP. She is the author of ‘Tainted Democracy, Viktor Orbán and the Subversion of Hungary” and is a Senior Fellow at the Center for European Policy Analysis (CEPA).
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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