Canadian Prime Minister Mark Carney publicly backed Kevin Warsh as the next chair of the Federal Reserve on Friday, calling him a “fantastic choice,” in a rare point of alignment amid an escalating U.S.-Canada trade war. “Kevin Warsh is a fantastic choice to lead the world’s most important central bank at this crucial time,” Carney wrote on X shortly after President Donald Trump announced he will nominate the former Fed board member to replace current chair, Jerome Powell. Carney is an experienced central banker himself. He oversaw the Bank of Canada from 2008-2013, briefly overlapping with Warsh’s first tenure as a Fed governor, before leading the Bank of England from 2013-2020. The endorsement stood out as relations between the Trump administration and Canada continue to strain, with Canadian officials warning that Trump’s trade agenda and broader foreign policy are destabilizing both the U.S. and Canadian economies. On Saturday, Trump threatened to impose a 100 percent tariff on Canada if it follows through on a planned trade deal with China. In his latest threat Thursday, he said he would impose a 50 percent tariff on Canadian-made aircrafts after a dispute over aviation certification. “Canada is effectively prohibiting the sale of Gulfstream products in Canada through this very same certification process,” the president wrote on Truth Social. “If, for any reason, this situation is not immediately corrected, I am going to charge Canada a 50% Tariff on any and all Aircraft sold into the United States of America.” Earlier this week, the Bank of Canada said U.S. tariffs are expected to have a “lasting negative impact” on Canada’s economy, citing prolonged uncertainty tied to Trump’s trade policies. “It’s pretty clear that the days of open rules-based trade with the United States are over,” Bank of Canada Gov. Tiff Macklem said. “It’s not a good thing for Americans. It’s not a good thing for Canadians.” In an interview with Reuters on Wednesday, Macklem said Trump’s actions could derail the central bank’s economic forecasts, pointing to Trump’s repeated tariff threats against Canada and other actions abroad, including repeat pressure on Greenland and the capture of Venezuelan President Nicolás Maduro. “There is unusual potential for a new shock, a new disruption,” he said. “Geopolitical risks are elevated.” Macklem also voiced his support for Powell, telling Reuters that he told Powell in a private conversation that he was “doing a good job under difficult circumstances.” Several global central bank leaders, including Macklem, issued a joint statement earlier this month in support of Powell and the Federal Reserve after the Department of Justice launched a criminal investigation into the Fed chair. They warned that political pressure on central banks could undermine global financial stability. “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” the statement said. “Chair Powell has served with integrity, focused on his mandate and an unwavering commitment to the public interest. To us, he is a respected colleague who is held in the highest regard by all who have worked with him.”

BRUSSELS — Only a few days ago, EU diplomats and officials were whispering furtively about the idea they might one day need to think about how to push back against Donald Trump. They’re not whispering anymore.  Trump’s attempt, as EU leaders saw it, to “blackmail” them with the threat of tariffs into letting him take the sovereign Danish island of Greenland provoked a howl of outrage — and changed the world.  Previous emergency summits in Brussels focused on existential risks to the European Union, like the eurozone crisis, Brexit, the coronavirus pandemic, and Russia’s invasion of Ukraine. This week, the EU’s 27 leaders cleared their diaries to discuss the assault they faced from America.  There can be little doubt that the transatlantic alliance has now been fundamentally transformed from a solid foundation for international law and order into a far looser arrangement in which neither side can be sure of the other.  “Trust was always the foundation for our relations with the United States,” said Polish Prime Minister Donald Tusk as he arrived for the summit in Brussels on Thursday night. “We respected and accepted American leadership. But what we need today in our politics is trust and respect among all partners here, not domination and for sure not coercion. It doesn’t work in our world.”  The catalyst for the rupture in transatlantic relations was the U.S. president’s announcement on Saturday that he would hit eight European countries with tariffs of 10 percent for opposing his demand to annex Greenland.  That was just the start. In an avalanche of pressure, he then canceled his support for the U.K. premier’s decision to hand over the Chagos Islands, home to an important air base, to Mauritius; threatened France with tariffs on Champagne after Macron snubbed his Board of Peace initiative; slapped down the Norwegian prime minister over a Nobel Peace Prize; and ultimately dropped his threats both to take Greenland by military force and to hit countries that oppose him with tariffs.  Here was a leader, it seemed to many watching EU officials, so wild and unpredictable that he couldn’t even remain true to his own words.  But what dismayed the professional political class in Brussels and beyond was more mundane: Trump’s decision to leak the private text messages he’d received directly from other world leaders by publishing them to his 11.6 million followers on social media.  Trump’s screenshots of his phone revealed French President Emmanuel Macron offering to host a G7 meeting in Paris, and to invite the Russians in the sidelines. NATO Secretary-General Mark Rutte, who once called Trump “daddy,” also found his private text to Trump made public, in which he praised the president’s “incredible” achievements, adding: “Can’t wait to see you.”  Leaking private messages “is not acceptable — you just don’t do it,” said one senior diplomat, like others, on condition of anonymity because the matter is sensitive. “It’s so important. After this, no one can trust him. If you were any leader you wouldn’t tell him anything. And this is a crucial means of communication because it is quick and direct. Now everything will go through layers of bureaucracy.”  Mark Carney had been one of the classic Davos set and was a regular attendee: suave, a little smug, and seeming entirely comfortable among snow-covered peaks and even loftier clientele. | Gian Ehrenzeller/EPA The value of direct contact through phone texts is well known to the leaders of Europe, who, as POLITICO revealed, have even set up their own private group chat to discuss how to respond when Trump does something inflammatory. Such messages enable ministers and officials at all levels to coordinate solutions before public statements have to be made, the same senior diplomat said. “If you don’t have trust, you can’t work together anymore.”  NO MORE NATO Diplomats and officials now fear the breakdown in personal trust between European leaders and Trump has potentially grave ramifications.  Take NATO. The military alliance is, at its core, a promise: that member countries will back each other up and rally to their defense if one of them comes under attack. Once that promise looks less than solid, the power of NATO to deter attacks is severely undermined. That’s why Denmark’s Prime Minister Mette Frederiksen warned that if Trump invaded the sovereign Danish territory of Greenland it would be the end of NATO.  The fact he threatened to do so has already put the alliance into intensive care, another diplomat said.  Asked directly if she could still trust the U.S. as she arrived at the Brussels summit, Frederiksen declined to say yes. “We have been working very closely with the United States for many years,” she replied. “But we have to work together respectfully, without threatening each other.”  European leaders now face two tasks: To bring the focus back to the short-term priorities of peace in Ukraine and resolving tensions over Greenland; and then to turn their attention to mapping out a strategy for navigating a very different world. The question of trust, again, underpins both.  When it comes to Ukraine, European leaders like Macron, Germany’s Friedrich Merz and the U.K.’s Keir Starmer have spent endless hours trying to persuade Trump and his team that providing Kyiv with an American military element underpinning security guarantees is the only way to deter Russian President Vladimir Putin from attacking again in future.  Given how unreliable Trump has been as an ally to Europe, officials are now privately asking what those guarantees are really worth. Why would Russia take America’s word seriously? Why not, in a year or two, test it to make sure?  THE POST-DAVOS WORLD Then there’s the realignment of the entire international system.  There was something ironic about the setting for Trump’s assaults on the established world order, and about the identities of those who found themselves the harbingers of its end.  Among the snow-covered slopes of the Swiss resort of Davos, the world’s business and political elite gather each year to polish their networks, promote their products, brag about their successes, and party hard. The super rich, and the occasional president, generally arrive by helicopter.  As a central bank governor, Mark Carney had been one of the classic Davos set and was a regular attendee: suave, a little smug, and seeming entirely comfortable among snow-covered peaks and even loftier clientele.  Now prime minister of Canada, this sage of the centrist liberal orthodoxy had a shocking insight to share with his tribe: “Today,” Carney began this week, “I’ll talk about the rupture in the world order, the end of a nice story, and the beginning of a brutal reality where geopolitics among the great powers is not subject to any constraints.”  “The rules-based order is fading,” he intoned, to be replaced by a world of “great power rivalry” in which “the strong do what they can, and the weak suffer what they must.”  “The old order is not coming back. We should not mourn it. Nostalgia is not a strategy.”  Carney impressed those European officials watching. He even quoted Finnish President Alexander Stubb, who has enjoyed outsized influence in recent months due to the connections he forged with Trump on the golf course.  NATO Secretary-General Mark Rutte, who once called Donald Trump “daddy,” also found his private text to Donald Trump made public, in which he praised the president’s “incredible” achievements, adding: “Can’t wait to see you.” |  Jim lo Scalzo/EPA Ultimately, Carney had a message for what he termed “middle powers” — countries like Canada. They could, he argued, retreat into isolation, building up their defenses against a hard and lawless world. Or they could build something “better, stronger and more just” by working together, and diversifying their alliances. Canada, another target of Trump’s territorial ambitions, has just signed a major partnership agreement with China. As they prepared for the summit in Brussels, European diplomats and officials contemplated the same questions. One official framed the new reality as the “post-Davos” world. “Now that the trust has gone, it’s not coming back,” another diplomat said. “I feel the world has changed fundamentally.”  A GOOD CRISIS It will be up to European Commission President Ursula von der Leyen and her team to devise ways to push the continent toward greater self-sufficiency, a state that Macron has called “strategic autonomy,” the diplomat said. This should cover energy, where the EU has now become reliant on imports of American gas.  The most urgent task is to reimagine a future for European defense that does not rely on NATO, the diplomat said. Already, there are many ideas in the air. These include a European Security Council, which would have the nuclear-armed non-EU U.K. as a member. Urgent efforts will be needed to create a drone industry and to boost air defenses.  The European Commission has already proposed a 100,000-strong standing EU army, so why not an elite special forces division as well? The Commission’s officials are world experts at designing common standards for manufacturing, which leaves them well suited to the task of integrating the patchwork of weapons systems used by EU countries, the same diplomat said.  Yet there is also a risk. Some officials fear that with Trump’s having backed down and a solution to the Greenland crisis now apparently much closer, EU leaders will lose the focus and clarity about the need for change they gained this past week. In a phrase often attributed to Churchill, the risk is that EU countries will “let a good crisis go to waste.”  Domestic political considerations will inevitably make it harder for national governments to commit funding to shared EU defense projects. As hard-right populism grows in major regional economies, like France, the U.K. and Germany, making the case for “more Europe” is harder than ever for the likes of Macron, Starmer and Merz. Even if NATO is in trouble, selling a European army will be tough.  While these leaders know they can no longer trust Trump’s America with Europe’s security, many of them lack the trust of their own voters to do what might be required instead. 

Reform UK leader Nigel Farage said he doesn’t like banks and will scrap interest payments British lenders receive through the Bank of England’s quantitative easing program.  The Reform Party included the proposal to end the practice of the U.K. central bank paying interest on the reserves placed with it by banks in its 2024 manifesto, which it claimed would bring in up to £40 billion for taxpayers.  “We are going to do it. Some of the banks won’t like it. Well, I don’t like the banks very much because they debanked me, didn’t they?” Farage said in an interview with Bloomberg at the World Economic Forum in Davos.  “This will be tough for banks to accept, but I am sorry, the drain on public finances is just too great. It’s not a tax. They are just not going to get free money anymore. They’ll adjust; business always does.” The BoE currently pays interest on the bank reserves created during the post-global financial crisis quantitative easing (QE) program. That money is now largely held on deposit back at the BoE by commercial banks, which earn a risk-free return linked to the current Bank Rate. Amid concerns about what a Reform government would mean for policymakers’ independence, Farage declared that he’s “not questioning the independence” of the central bank, but didn’t rule out appointing his own governor.  “Andrew Bailey is a perfectly polite, nice man, but they should have picked somebody who was a Brexiteer to be in charge of the Bank of England to think totally differently, especially around financial markets, financial market regulation,” he said.  “If we don’t do things differently, we’re going to get poorer. We’re going to pick different people with a different attitude towards everything.”  Farage has recently claimed he is giving “serious thought” to scrapping the independent Office for Budget Responsibility if his party wins the next general election.

Donald Trump will be the major draw at this year’s World Economic Forum in Davos, Switzerland, even as the U.S. president’s policies continue to undermine the spirit of global cooperation the elite gathering has championed in the past. “We’re pleased to welcome back President Trump to Davos, and he’s bringing the largest U.S. delegation ever,” WEF chief executive Børge Brende said at a press conference Tuesday. The U.S. president will bring “five secretaries and also other key players,” including a bipartisan delegation from the U.S. Congress, Brende said. The World Economic Forum, which takes place next week in the Alpine ski resort, comes as the world hangs on Trump’s words. Since the start of the month, Trump has captured Venezuelan dictator Nicolás Maduro, threatened to invade Greenland, hinted he could take action in Iran over violent crackdowns on protesters, announced a temporary cap on credit card interest rates that has stoked fears of a credit crunch, and opened a criminal investigation into Jerome Powell, chair of the U.S. Federal Reserve. Brende said the meeting will take place “against the most complex geopolitical backdrop since 1945.” According to the WEF, Trump will be joined by Canadian PM Mark Carney, China’s Vice-Premier He Lifeng, Ukrainian President Volodymyr Zelenskyy and leaders from Israel and Palestine. From Europe, European Commission President Ursula von der Leyen will attend along with leaders from Germany, Spain, Belgium, Finland, Greece, Ireland, the Netherlands, Poland and Serbia. NATO Secretary-General Mark Rutte will also join. The informal grouping of countries supporting Ukraine, known as the “coalition of the willing,” are expected to meet with Trump and Zelenskyy on the sidelines of the WEF to seek U.S. backing for security guarantees for Ukraine, the Financial Times reported. Business leaders, including the head of AI giant Nvidia Jensen Huang and top executives from Microsoft, Meta, Palantir, Anthropic and OpenAI, will join senior leaders from JPMorgan, Goldman Sachs, BlackRock and other major finance players in Davos. International organizations, which have seen their standing and funding rocked by Trump’s administration — including last week’s U.S. withdrawal from dozens of international organizations and the world’s overarching climate change treaty — will also attend. The heads of the United Nations, the World Trade Organization, the World Bank, the International Monetary Fund, the World Health Organization and the Organisation for Economic Co-operation and Development will take part. Celebrities and artists including David Beckham, Yo-Yo Ma, Marina Abramović, Matt Damon and will.i.am will also attend. The theme of the gathering will be “A Spirit of Dialogue.” “We do hope that a spirit of dialogue can also lead to areas where the leaders can find overlaps in interests,” Brende said.

Global central banks rallied behind Federal Reserve Chair Jerome Powell on Tuesday, pushing back against a perceived political attack on the independence of the world’s most important financial institution. “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” the officials said in a joint statement. “The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.” The statement was signed by European Central Bank President Christine Lagarde on behalf of the ECB’s Governing Council, by Bank of England Governor Andrew Bailey as well as the heads of the Swiss, Swedish, Danish, Australian, Canadian, South Korean and Brazilian central banks. Pablo Hernández de Cos, general manager of the Bank for International Settlements and François Villeroy de Galhau, chair of the Board of Directors of the Bank for International Settlements, also signed the statement. Over the weekend, Powell disclosed that the Fed had been served with grand jury subpoenas by the Department of Justice, raising the threat of a criminal indictment tied to his congressional testimony on the ongoing renovation of the Fed’s Washington headquarters. In what amounted to a dramatic escalation in the standoff between the White House and the central bank, Powell used an unusually direct video message to argue that the legal action is politically motivated and part of a campaign of “intimidation,” designed to push the Fed into cutting interest rates more aggressively. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said in language rare in its starkness for a serving Fed chair. Trump, a longtime critic who has piled personal insults on Powell since his reelection both through ad hoc comments and through his social media feed, denied any role in the investigation. Speaking to NBC News on Sunday, Trump said he was unaware of the probe but added that Powell is “certainly not very good at the Fed, and he’s not very good at building buildings.” The joint statement on Tuesday took a different view. “Chair Powell has served with integrity, focused on his mandate and an unwavering commitment to the public interest,” it said. “To us, he is a respected colleague who is held in the highest regard by all who have worked with him.” Expressions of support for Powell from around the world had already begun on Monday, with Bundesbank President Joachim Nagel telling POLITICO that: “The independence of central banks is a prerequisite for price stability and a great public good. Against this background, the recent developments in the U.S. regarding the Fed chairman are cause for concern.” Bank of France Governor Villeroy de Galhau, meanwhile, had told a  new year event at the ACPR regulator that Powell was “a model of integrity and commitment to the public interest.” POLITICO reported on Monday that the decision to subpoena the Fed had also raised concern among various White House officials, who are concerned that it may trigger volatility in financial markets and complicate efforts to keep the economy on track in an election year. Senior Republican Party lawmakers have also spoken out against the move.

BRUSSELS — European leaders failed to reach a deal to use frozen Russian assets to send billions of euros in financial aid to Ukraine after 14 hours of discussions at an EU summit in Brussels. In a blow for EU unity, leaders will now consider a solution based on joint borrowing to send €90 billion to Ukraine over two years. This plan won’t include Hungary, Slovakia and Czechia. Leaders broke from the summit briefly about 1:30 a.m. and will continue their discussions into the night. With a deal on Ukraine’s long-term financing still up in the air, leaders are talking about a potential bridge funding option to ensure Kyiv doesn’t run out of money. Two EU officials told POLITICO that a new draft version of the conclusions ― the joint statement from the summit ― would see a temporary financing solution put into place in the medium term. The latest proposal on the EU’s plan to keep Ukraine afloat over the next years, obtained by POLITICO, sets out that leaders agree “to provide a loan to Ukraine … based on EU borrowing on the capital markets backed by the EU budget headroom.” That outcome would be a massive blow for German Chancellor Friedrich Merz, who was pushing the assets plan — and a victory for Belgian Prime Minister Bart De Wever.

EU leaders will find a solution to the problem of how to get money to Ukraine but must stay on the right side of the law, European Central Bank President Christine Lagarde said Thursday. Addressing a press conference in Frankfurt after the ECB’s Governing Council meeting, Lagarde said she was “confident” that heads of government meeting in Brussels would thrash out a mechanism for lending to Kyiv, but immediately warned against expecting the ECB to underwrite it. “We are an area of the world which praises itself for respecting the rule of law,” Lagarde said. “I’m sure that there are solutions that can be debated and discussed, and … constructions that can be elaborated, but it’s not for the central bank to actually encourage [or]support a mechanism under which we would be called upon — and scheduled — to breach Article 123 of the Treaty.” Article 123 of the Treaty on the Functioning of the European Union forbids the ECB from printing money explicitly to finance government spending, which is what an EU loan to Ukraine would represent. EU leaders are trying to put together a loan package that would be secured against Russian sovereign assets currently frozen at the Euroclear depository in Belgium. Russia has threatened legal action if it goes ahead, and Belgium has refused to back the EU’s proposal, for fear of being left on the hook for the legal liability. In that context, various reports have suggested that leaders have leaned on the ECB to “backstop” the loan with guarantees of its own. “You cannot expect me to validate a mechanism under which there would be monetary financing,” Lagarde said. “This is pretty obvious.”

The affordability crisis that upended global politics last year continues to ripple across some of the world’s biggest democracies — punishing incumbents and undermining longstanding political alliances. New international POLITICO polling shows the voter frustration with persistent financial strain remains a deeply potent force today. In five major economies, The POLITICO Poll found ongoing cost-of-living pressures continue to reverberate through politics: * In the United States, where Donald Trump returned to power on a campaign of economic populism, nearly two-thirds of voters — 65 percent — say the cost of living in the country has gotten worse over the last year. * In the United Kingdom, where voters ousted the Conservative Party in 2024 after 14 years of rule, 77 percent say the cost of living has worsened. * In France, where President Emmanuel Macron is grappling with historically low favorability ratings, almost half of all adults — 45 percent — say their country is falling behind comparable economies. * In Germany, after prolonged infighting over the economy, former Chancellor Olaf Scholz’s governing coalition collapsed last year. There, 78 percent of respondents say the cost of living has gotten worse over the last year. * And in Canada, a post-pandemic affordability crisis helped fuel a public backlash against then-Prime Minister Justin Trudeau’s government ahead of his resignation earlier this year. The POLITICO Poll found that 60 percent of adults in the country say the cost of living is the worst they can remember it being. The results, from POLITICO and Public First’s first-ever joint international poll, illustrate the uphill battle many leaders face in trying to contain the intertwined economic and political unrest. Five years after the coronavirus pandemic upended the global economy — and as the world contends with competing conflicts and AI rapidly becoming a defining force — meaningful shares of respondents across the U.S., Canada, and Europe’s biggest economies of Germany, the United Kingdom and France view the cost of living as among the biggest issues facing the world right now. But as leaders seek to address the affordability concerns, many say that their leaders could be doing a lot more to help on the cost of living, but are choosing not to. That has left incumbent governments grappling with how to manage the rising economic dread — and control the resulting political backlash. It has also created an opportunity for opposition parties on economic messaging. “For incumbents it’s very difficult to run on these platforms,” said Javier Carbonell, a policy analyst at the European Policy Centre. “Today, center-left and center-right parties are seen as incumbents, and as the ones who are to put the blame.” VOTERS ARE PESSIMISTIC ABOUT THE COST OF LIVING There is a pervasive sense in the five countries that their economies are deteriorating. In France, 82 percent of adults say the cost of living in the country has worsened over the last year, as do 78 percent of respondents in Germany; 77 percent of adults in the United Kingdom and 79 percent in Canada say the same. A majority of people in all five countries go even further, saying the cost of living crisis has never been worse. In a further sign of the trouble facing leaders, the poll results suggest many view affordability as a systemic problem more than a personal one. Majorities across the countries, for example, say the issue of affordability is the high cost of goods, not that they are not paid too little. In the U.K., roughly two-thirds of adults say the country’s economy has deteriorated — greater than the 46 percent who say their own financial situation has worsened over the last year. That same pattern holds for France, Canada and Germany, suggesting the public holds broad concerns about the economy and affordability that go beyond their individual lives. While the European Union’s economy is set to grow by 1.4 percent in 2025, the economy in Germany has weakened over the past two years, and is expected to stagnate this year. In France, a series of government policies aimed at addressing cost-of-living concerns have contributed to an exploding national debt, which currently stands at nearly $4 trillion USD. In the United Kingdom, the results come against a backdrop of sluggish economic growth, with incumbent Prime Minister Keir Starmer struggling to convince voters that his center-left Labour Party can drive down the cost of living. And in Canada, the country’s deep-seated anxiety is born out by federal inflation data. Statistics Canada reported this week that the consumer price index ticked up 2.2 percent in November compared to the same month in 2024 — nearly a bullseye on the central bank’s 2 percent target. NEGATIVE ECONOMIC VIEWS ARE SHAPING POLITICS Voters’ economic concerns are roiling politics. In 2024, Trump ran a campaign on economic concerns without having to oversee the economy himself. That dynamic has shifted in recent months, with voters beginning to sour on his handling of the economy, underscoring the difficulty of convincing voters of economic progress amid stubborn cost-of-living concerns. That feeling of falling behind was particularly acute among European respondents in the POLITICO Poll, with nearly half of adults in Germany, France and the United Kingdom saying that their country is “generally falling behind other comparable economies.” That pessimism has pushed many people out of the political process, Carbonell said, “because there’s no expectation that things are going to change.” For others, it’s fueling a search for political alternatives. “There is this increasing demand for a very anti-system politics,” he said. In Germany, Chancellor Friedrich Merz made revamping the economy a central campaign promise. But since taking office, he has been preoccupied with geopolitical issues, including the ongoing trade war and the Russia-Ukraine war. That has become a successful line of attack for Merz’s critics — among them the far-right Alternative for Germany (AfD) party, now polling in first place. The party has accused Merz — whose approval ratings are at an all-time low — of not paying enough attention to the needs of the people in his own country, nicknaming him the “foreign policy chancellor.” In France, the government is looking to roll back some of the policies it rolled out in response to cost-of-living concerns, but doing so could prove particularly unpopular with a population laser-focused on high costs. It could also fuel anti-establishment parties on the right and left, which have made the issue a central weapon against France’s crumbling political center. David Coletto, a longtime pollster in Canada and CEO of the firm Abacus Data, has for years tracked affordability concerns — and found widespread concern among most survey respondents. “This is not a marginal concern or a background anxiety,” he wrote of results from POLITICO’s November poll. “It is a dominant lived experience that continues to shape how Canadians interpret government performance, leadership, and competing policy priorities, alongside concern about Donald Trump, trade, and global instability.” AFFORDABILITY MESSAGING WILL BE A CENTRAL MESSAGE IN UPCOMING ELECTIONS Affordability will be a central feature of elections across the globe next year — with some of that messaging already underway. In the U.S., Democratic candidates from New York to Georgia focused much of their 2025 campaigns on lowering the costs of living, and both parties are planning to center the issue in the midterms. “For now, the cost of living remains a warning light rather than a red light for the Carney government,” Coletto wrote. “But the intensity of feeling, combined with seasonal pressures and fragile household finances, means the issue is unlikely to fade quietly into the background.” Starmer’s government — languishing in the polls and facing local elections in 2026 — has pivoted in recent weeks to a more explicit focus on affordability. The U.K. government has also floated freezing train fares, lowering energy bills, and boosting the minimum wage in an attempt to solve the affordability crisis, but a record-high level of taxation confirmed at a government-wide budget last month risks blunting its economic message. In Germany, the issue of affordability may gain new momentum when voters in five federal states head to the polls to elect new state parliaments next year. In Berlin, the far-left Left Party, for example, plans to take a playbook from the affordability-centered campaign of New York’s Zohran Mamdani as a model for the state elections in September. With local elections also taking place across France next year, and a presidential election in 2027, these issues are likely to continue to take center stage, especially in the larger cities where pricing pressures have been particularly acute. In Paris, the outgoing center-left administration has been praised for making the city greener and more pedestrian-friendly, but far more needs to be done on affordability, said David Belliard, a member of the outgoing administration and the Green Party’s candidate for mayor. “We’ve spent a lot of time fighting against the end of the world,” Belliard said, “but maybe not enough helping people make it to the end of the month.” POLITICO’s Matt Honeycombe-Foster contributed to this report from the United Kingdom, Victor Goury-Laffont contributed to this report from France, Nette Nöstlinger contributed to this report from Germany and Nick Taylor-Vaisey contributed to this report from Canada.

BRUSSELS — Diplomats are working on a long-shot 11th-hour compromise to salvage a deal on sending vital financial aid to Ukraine at Thursday’s high-stakes EU leaders’ summit. On Wednesday evening Europe’s leaders were split into irreconcilable camps, at least publicly, and seemed unlikely to agree on how to fund Kyiv, thanks partly to the reemergence of the same bitter north-south divisions over joint debt that torpedoed EU unity during the eurozone crisis. Only a few hours before the 27 leaders gather in Brussels, two opposing groups are crossing swords over whether to issue a loan to Ukraine based on frozen Russian central bank reserves, largely held by the Euroclear bank in Belgium. Germany along with Nordic and Eastern European countries say there is no alternative to that scheme. But they are running into hardening resistance from Belgium and Italy, which are gunning for Plan B: Support for Kyiv based on EU debt guaranteed by the bloc’s common budget. Bulgaria, Malta, Hungary and Slovakia are also against the use of the assets. In a stark illustration of the schism, Italian Prime Minister Giorgia Meloni said on Wednesday she would use the Council meeting to demand answers on the “possible risks” of leveraging the assets, while German Chancellor Friedrich Merz doubled down on the assets plan “to help end this war as quickly as possible.” ESCAPE PLAN The first contours of a potential route out of the impasse — one that would have to be hashed out during hours of negotiations — are beginning to take shape. European Commission President Ursula von der Leyen cautiously opened the door to joint debt on Wednesday morning during a speech at the European Parliament in Strasbourg. “I proposed two different options for this upcoming European Council, one based on assets and one based on EU borrowing. And we will have to decide which way we want to take,” she said. The key to such a plan would be carving Hungary and Slovakia — which both oppose giving further aid to Ukraine — out of the joint debt scheme, four EU diplomats told POLITICO. A deal could still be agreed at the Council among the 27 EU countries, but the ultimate arrangement would stipulate that only 25 would be involved in the funding. Agreeing such a scheme would give a crucial lifeline to Ukraine’s shattered public finances as its coffers risk running dry as early as next April. Hungary’s Viktor Orbán is already predicting the assets will not be discussed in Brussels, and that negotiations have shifted to joint loans. Multiple diplomats, however, retorted that Orbán was wrong and that the Russian assets were still “the only game in town.” CRUNCH TIME Despite growing political pressure on the EU to prove it can rise to meet the existential challenges facing Ukraine, diplomats from the rival camps were often skeptical on Wednesday that a compromise could be found. The idea of EU joint debt has for years been anathema to the northern member countries, who have been unwilling to underwrite bonds for highly indebted southern countries. “The closest [situations] to what’s happening now with frozen assets are the 2012-2013 financial crisis and Greece’s bailout in 2015,” said a senior EU diplomat who, like others quoted in this story, was granted anonymity to speak freely. With respect to the Ukraine war, the northerners deny they oppose the use of eurobonds over concerns about the solvency of other EU countries, but argue they prefer the assets because they would provide a greater long-term cash infusion to Ukraine. “This is not about frugals versus spenders. It’s about being pro-Ukraine or not,” said a second EU diplomat, adding that northern and eastern European countries have taken the lead in bankrolling Ukraine’s war needs over the past four years. BACKING THE BELGIANS Despite weeks of painstaking negotiations over the assets, efforts to bring Belgium around are backfiring. The country adamantly opposes using the Russian money held by Euroclear in Brussels, and has now attracted allies. “[The Commission] created a monster, and they’ve been eaten by it,” said a third EU diplomat, referring to the assets plan. Germany and its allies, however, warn there is still no alternative to targeting the Euroclear money. “If you want to do something together as Europeans, the reparations loan is the only way,” a fourth EU diplomat said. The idea behind the assets-based loan is that Kyiv would not have to repay it unless Moscow coughs up the billions-worth of reparations needed to rebuild Ukraine’s pulverized cities — an unlikely scenario. Belgian Prime Minister Bart De Wever is expected to push the Commission to explore joint debt during Thursday’s summit of EU leaders — in the hope that others around the table will echo his demands. His supporters claim the model “is cheaper and offers more clarity,” said a fifth EU diplomat. But critics point out it will also require the political blessing of Hungary’s pro-Russia Prime Minister Orbán — who has repeatedly threatened to torpedo further financial aid to Kyiv. The impasse would require the Commission to concoct a workaround to keep Ukraine afloat while allowing Orbán to save face, according to the four EU diplomats. In exchange for his support the Commission could spare Hungarian and Slovak taxpayers from having to pay for Ukraine’s defense.   “The Commission now pushes joint loans, but we will not let our families foot the bill for Ukraine’s war,” Orbán wrote on X on Wednesday afternoon. He added that “Russian assets will not be on the table at tomorrow’s EUCO [European Council].” However, a senior EU official was quick to reject the Hungarian leader’s claim that the Russian reserves were no longer in play. “The reparations loan is still very much on the table,” they said. Bjarke Smith-Meyer, Gabriel Gavin and Gerardo Fortuna contributed to this report

BRUSSELS ― Two legal opinions prepared by international lawyers contradict Belgium’s claim it could be on the hook to pay substantial damages if the EU moves ahead with plans to use Russia’s frozen assets to help Ukraine. Belgian Prime Minister Bart De Wever has said his country could be found liable for using the assets, arguing in a letter to European Commission President Ursula von der Leyen that the risk of successful legal retaliation by Moscow is “very real.” Russia has since ramped up those fears, with the central bank filing a lawsuit in Moscow against Brussels-based financial depository Euroclear — where most of Russia’s frozen assets in Europe are held — over the freezing of funds and securities. But according to two legal opinions — one prepared by law firm Covington & Burling, another by a group of international legal scholars — assert that the risk of a successful legal claim against Belgium over the assets is minimal.  The main reason cited by the scholars is that Russia would find it nearly impossible to find a jurisdiction that would be willing to hear a case against Belgium or enforce any claim against the Belgian government or Euroclear over the assets. “Any judgment of a Russian court would not be recognized or enforced in the EU or the U.K. on public policy grounds,” six legal scholars wrote in a paper, adding that the Russian central bank is unlikely to bring claims in either U.K. or EU jurisdictions because doing so would waive its sovereign immunity. A claim brought before the Court of Justice of the European Union, the International Court of Justice or any comparable international institution would prove similarly problematic largely because Russia does not accept their jurisdiction, argue the authors of a paper by Covington & Burling.  In his letter to von der Leyen, De Wever raised the fact that Belgium has a bilateral investment treaty with Russia that exposes Brussels to legal risk in the event of a dispute. The letter cites specialized law firms but does not name them. The authors of both legal opinions assert that Russia would not be able to pursue its claim against Belgium or the EU via such a treaty due to the fact that the treaty does not cover sovereign assets. “A Tribunal constituted pursuant to such a treaty would lack jurisdiction to hear a dispute relating to alleged expropriation of Russia’s sovereign assets,” wrote Covington & Burling. The legal scholars — who are linked among other institutions to Stanford University, the Kyiv School of Economics and German law firm Bender Harrer Krevet, among others — conclude that Belgium has already weathered the most serious risk when the assets were frozen in the first place and when the EU voted to immobilize them indefinitely. “No material new risks will be created by adopting the full Reparations Loan plan and any such negligible risks are materially outweighed by the proposal’s benefits for European peace, security, stability, and the long-term viability of Ukraine,” write the scholars. The Belgian government did not respond to POLITICO’s request for comment.