WHAT ARE THE ODDS? ANALYZING SIX GLOBAL SCENARIOS FOR 2026.  A series of inflection points await the world. Here’s our view of what might happen next year. By JAMIE DETTMER Illustration by Michael Waraksa for POLITICO Last year, POLITICO chose to be boosterish about the future as it outlined some not entirely tongue-in-cheek reasons for optimism about 2025. Some predictions were spot-on, though others less so: Donald Trump did manage to end (maybe) the war in Gaza, but peace in Ukraine is proving more elusive.   This P28 we’re taking a different tack by offering odds on some 2026 scenarios — from the political survival of both Hungary’s Viktor Orbán and Israel’s Benjamin Netanyahu to the chances of a financial crash and the likely winners of the mid-term elections in the United States.   Is the author prepared to bet his own salary on any of the episodes sketched below? Hell no! The most common mistake when it comes to gambling is to start in the first place. Just ask Harry Kakavas, one of Australia’s smartest real-estate salesmen, who made a fortune selling property on the Gold Coast only to lose tens of millions of dollars at the Baccarat tables.  But if you want to place some wagers, be my guest. There are plenty of online gambling sites that’ll be happy to take your money.   Here’s a caution though. Politics in this topsy-turvy era is even less predictable than sports. And even more so with the ever-unpredictable Donald Trump in the White House. After a whirlwind year at the start of his second term, here’s how we see things unfolding across the globe in 2026.   TRUMP PULLS OFF AN END TO THE WAR IN UKRAINE For all the talk of Western sanctions crashing the Russian economy and bringing the Kremlin to heel, Vladimir Putin seems unperturbed. Regardless of the carnage on the frontlines or Russians queueing for gas because of Ukrainian drone strikes on oil refineries, he has remained fixed on pressing his maximalist demands.   Meanwhile, there are domestic political limits on what Ukraine’s Volodymyr Zelenskyy can agree to without triggering a public backlash.   Nonetheless, Trump often seems more inclined than not to think a deal might be possible. After his Alaska summit with Putin, Trump was heard on a hot mic explaining to France’s Emmanuel Macron that he thinks Putin really wants to “make a deal for me.” “I think he wants to make a deal with me. Do you understand that? As crazy as it sounds,” Trump added.   Of course, the stubbornness of the Russian leader has left Trump frustrated and occasionally musing about whether he’s being played — which is what Melania Trump reportedly thinks Putin is doing.  The Russian leader is adept at stringing Trump along — and his timing is impeccable when reaching out to his US counterpart. Take his two-hour-log phone call last month dangling the prospects of a summit just as Trump hinted he might give Ukraine Tomahawk Cruise missiles.   Arguably, prolonging the war is useful for Putin. It has the benefit of further straining cash-strapped European nations (see below), and risks fracturing the transatlantic alliance. A distracted West also helps Putin’s ally Xi Jinping as he calculates whether, or when, to make a move on Taiwan.  Arguably, prolonging the war is useful for Putin. | Sputnik And Putin’s regime could be imperiled if he ends the conflict abruptly. A rapid shift out of a war economy would likely trigger some dangerous sociopolitical infighting, according to Ella Paneyakh, a sociologist at the New Eurasian Strategies Centre think tank. She says it would spark “cruel and vicious competition for diminishing resources.”  With Ukraine’s severe manpower shortage — Ukrainian units are able to deploy just a dozen troops per kilometer of front — there’s always the chance of a frontline breakthrough. In short, Putin may well calculate he can get more by persisting: more land, Western security guarantees so watered down they’re worthless and a cap on the size of a postwar Ukrainian army. That would handily set the stage for a later resumption of Russian revanchist hostilities.   The counter-argument? The Russian economy is struggling with high interest rates, labour shortages and soaring government borrowing costs. There’s alarm about the bad debt Russian banks are shouldering. The status quo may not be able to last forever. Likewise, though, Ukraine could be on the ropes this winter with Russia’s relentless targeting of the country’s energy infrastructure and the Europeans unable to bankroll Kyiv sufficiently.   Odds: 4/1 2026 IS THE YEAR THE BOND MARKET SAYS ENOUGH IS ENOUGH  Bill Clinton’s campaign guru James Carville once suggested it would be fun to be reincarnated as the bond market. “You can intimidate everybody,” he said.   Even Trump appears to appreciate he’s outranked by the real masters of the universe — the bond vigilantes, hedge and pension fund bosses and high financiers. In the spring he had to pause his signature policy of “reciprocal tariffs” when the bond market frowned.   The awesome collective power of the global investment giants and traders was demonstrated three years ago when they reacted adversely to the poorly sequenced tax-cutting mini-budget of Britain’s Liz Truss. Her premiership was the shortest-lived in British history; Truss’s brief 49 days in office broke the previous record of George Canning, who served for 119 days in 1827 — but he had the excuse of dying on the job.   How many other Western heads of governments might be ushered to the door next year by the bond market as they fail to reduce rising budget deficits?   How many other Western heads of governments might be ushered to the door next year by the bond market as they fail to reduce rising budget deficits? | Timothy A. Clary/AFP via Getty Images The parlous state of public finances — from Japan to Britain and the United States — has kept long-dated borrowing costs at near multi-year peaks this year. The fiscal challenges of high levels of government borrowing, slow growth and sluggish productivity are only mounting. And it is going to be an uphill battle to keep the bond markets reassured.   Demand for government bonds worldwide has cooled with institutional investors put off by the outlook for some major governments being able to maintain their finances, including the United States. “The economic reforms needed to really cover increasing debt are lacking, and the capital market sees that,” Deutsche Bank CEO Christian Sewing said in September.   With its exploding public debt, France has been the canary in the mine with a succession of Emmanuel Macron-appointed prime ministers unable to muster parliamentary — or public — support for serious debt-reduction. Britain is closely following. Financial crisis and political crisis go hand-in-hand, reinforcing and fueling each other. For electoral reasons, governments are equally loath to hike taxes or cut spending, but something has got to give.   Odds: 5/1 NETANYAHU SURVIVES AGAIN They call him “the Magician” for a reason. When all has seemed lost in Benjamin Netanyahu’s long political career, he has implausibly bounced back. “An obsessive, relentless fighter, failure is not a legitimate option for him,” noted one of his biographers, Ben Caspit.   The Israeli leader was first nicknamed “Bibi the Magician” in the 1990s, after beating Shimon Peres in elections held months after the assassination of then-Prime Minister Yitzhak Rabin. Later, few believed he could pull off a win in 2015 given talk of criminal investigations and allegations of breach of trust and bribes. Still, Bibi pulled another rabbit out of his hat and secured reelection by courting the Israeli far right and religious nationalists — a tactic he repeated in 2019 to claw his way back.   The political obituarists were quick to declare him finished two years ago after Hamas rampaged through the kibbutzim of southern Israel. His government was widely blamed for a catastrophic failure to prevent the Oct. 7 attack, seen as the worst security lapse since the 1973 Yom Kippur war that ended the legendary Golda Meir’s career.  They call him “the Magician” for a reason. When all has seemed lost in Benjamin Netanyahu’s long political career, he has implausibly bounced back. | Joe Raedle/Getty Images Parliamentary elections have to be held by October next year. The smart money is on a vote being held sooner, likely Netanyahu’s preferred option. And despite Oct 7 and Netanyahu’s legal travails, he has slowly improved his political position. The rock-bottom poll ratings of his ruling Likud party started to lift after the military campaign against Hezbollah in Lebanon and they continued to rise with the humbling of Iran.   And Trump may have done Bibi a big favor by pushing him into accepting the Gaza peace plan and agreeing to a ceasefire. Netanyahu was able to use Trump as the excuse for halting the military campaign in Gaza, allowing him to overrule the religious nationalists and far-right partners in his rambunctious coalition who wanted the war to continue.  Netanyahu’s political opponents are drawing comfort from the fact that Likud appears to be running short of the 35 seats it secured in the last election. Opinion polls are showing his right-wing coalition would struggle to secure 61 seats in the 120-seat Knesset. But so too would the opposition bloc. And a poll last month for Zman Yisrael, a Hebrew-language media site, suggested Bibi was enjoying increased support in the wake of the ceasefire and hostage release deal. Likud appears on course to once again emerge as the largest party in the Knesset.  The best hope for Netanyahu’s opponents is to unite and offer Israelis a simple choice. That’s the strategy former Prime Minister Naftali Bennett is pursing; he’s wooing Gadi Eisenkot, a former chief of the Israeli Defense Forces, in a bid to shape the election as a head-to-head fight between himself and Bibi. Does Netanyahu have another card up his sleeve?  Odds 3/1 HUNGARY’S VIKTATOR WINS REELECTION Who would bet against Viktor Orbán leading his national conservative party, Fidesz, to another parliamentary victory?  The Viktator — a pun combining his first name and the Hungarian word for dictator — has been victorious in the past last three elections. The bête noire of Europe’s centrists and leftists, they will be determined to see him tripped up this time when Hungarians go to the polls in April, eager to be free of his EU obstructionism.   Who would bet against Viktor Orbán leading his national conservative party, Fidesz, to another parliamentary victory?  | Pierre Crom/Getty Images “The election isn’t going to be hermetically sealed off from the rest of Europe,” chuckles Frank Furedi, who heads the Brussels branch of the Hungarian government-backed college Mathias Corvinus Collegium. Furedi predicts Hungary will be the venue for a massive ideological brawl, further polarizing an already highly divided country.   Trump, MAGA influencers and Orbán’s allies in the Patriots for Europe group will be equally determined to see him remain as prime minister. They’re already drawing comfort, says Furedi, from the result in October of the Czech Republic’s parliamentary election, which saw right-wing populist Andrej Babiš’s ANO party secure a big win. The presidential election victory by a national conservative in Poland this year is also a source of confidence. But even Orbán loyalists don’t doubt this is going to be the toughest election he has faced in the past 15 years with incumbency proving a disadvantage.  And election campaigning is already underway. Péter Magyar, an MEP and former Fidesz insider, is Orbán’s main rival and hopes to capitalize on widespread public dissatisfaction with record inflation, economic woes and a series of political scandals. He’ll hope Orbán fatigue will kick in. His pro-Western and center-right party, Tisza, is running neck-and-neck with Fidesz in many polls, although some independent pollsters reckon Magyar is ahead.   But one in four Hungarians remain undecided. “A bit of trickery and a lot of campaigning” could shift the polls, according to political analyst Péter Krekó of the Budapest-based think tank Political Capital. “Tisza’s lead is not unchangeable.” Orbán is casting Magyar as a puppet of the EU and even a Ukrainian agent of influence who wants to push Hungary into war. He will hope his populist EU-baiting narratives, helped by a media controlled by his friends, shift the focus of the election toward the culture wars. It just may work, again.  Odds: 2/1 A SHADOW BANKING CRISIS ERUPTS And spare a worrying thought for the unregulated private credit market and the so-called shadow banks. The usually staid Governor of the Bank of England, Andrew Bailey, has already tolled the alarm bell.  In October, he warned of parallels with the 2008 financial crash, which was sparked by an American housing bubble fueled by easy credit and the issuance of risky subprime mortgages, with their subsequent bundling into opaque financial products that spread risk throughout the global financial system. Risk turned to contagion.  Governor of the Bank of England, Andrew Bailey, warned of parallels with the 2008 financial crash. | Oli Scarff/Getty Images Will the global financial system once again be brought to its knees? The private credit markets have become a major source of funding for businesses. That’s partly because traditional banks never regained their appetite for riskier lending after the 2008 crisis, and they have also been restrained because of greater regulatory scrutiny.   The hedge funds and private equity firms comprising the shadow banking sector now account for just under half of the world’s financial assets, worth around $250 trillion, according to the US Financial Stability Board.   The good news is that unlike traditional and investment banks they’re not using consumer cash deposits to invest in long-term, illiquid assets; they raise and borrow funds from investors, who in large part agree for their investment to be locked up for long periods. That reduces the short-term risks for the shadow banks — so in theory there shouldn’t be massive runs on them, like, say, what happened to Lehman Brothers in 2008.   But that’s in theory. If the private credit market is roiled, there’s bound to be an impact on other parts of the global financial system. And cash-strapped governments will be in no position to organize a bailout like in 2008, particularly at a time of even greater populist revolt. Furthermore, shadow banks have bet heavily on AI — and the AI boom might be a bubble ready to pop. It might soon be time to take cover.  Odds 3/1 DEMOCRATS VS. REPUBLICANS It will be a tall order for the Republicans to retain control of the House of Representatives.   The incumbent president’s party invariably loses control of the House in the midterms — only twice since 1938 has that not been the case. “Both exceptions reflected unusual circumstances,” according to William A. Galston of the Brookings Institution, a centrist think tank.   It will be a tall order for the Republicans to retain control of the House of Representatives.  | Visions of America/Universal Images Group via Getty Images In 2002, President George W. Bush’s Republicans surfed a rally-round-the-flag wave following the 9/11 attacks; and in 1998, Bill Clinton’s Democrats benefited from the unpopular effort by Republicans to impeach him.  Complicating the task for Democrats next year is a controversial redistricting scheme pushed by Trump in Texas and other states that should net Republicans additional seats, though some of that will be offset by Democrats redistricting in California. Nonetheless, with Republicans only enjoying a slim majority in the House, Democrats have to be odds-on favorites to win back control, especially if Trump’s net approval rating remains negative. In a reassuring sign for the party, Democrats scored big wins in gubernatorial races in New Jersey and Virginia in November.  The Senate is another matter. The GOP has a six-seat majority currently, and they’re playing on much safer turf. Although they will be defending 22 seats next year compared to the Democrats’ 13, most of their incumbents are considered secure. Only one Republican senator is running in a state that voted for Kamala Harris in last year’s presidential election. Two Democratic incumbents will be running in states that Trump won last year.   All in all, Republicans in the Senate look to be in a much stronger position than their counterparts in the House. For Democrats to win the Senate would require a giant wave of anti-Trump fervor sweeping into even some of the most conservative states in the country. It’s unlikely, but stranger things have happened.  Democrats seize the House: 2/1 odds; Republicans keep the Senate: 2/1 odds  

Christmas is still more than a week away but Spanish parents working for the EU in Brussels are already furious about next year’s school holidays. They’re angry because the European school system is planning to change its Christmas holiday dates for 2026-27, meaning children would have to go to class on Jan. 6, one of the biggest holidays of the year, when the Three Magic Kings (Reyes Magos) bring gifts. The European Schools have told parents that the holidays will run from Dec. 18, 2026 to Jan. 4, 2027, meaning children will be at school on Jan. 6. The parents want the holidays to run from Dec. 23 to Jan. 6 inclusive. But those calls have been in vain. The secretariat general that manages the European School system “has minimized the impact of the conflict, pointing out that the holiday could be addressed in the classroom as cultural content,” according to a note circulated among parents.  The secretariat general of the European Schools did not respond to a request for comment in time for publication. “These celebrations form part of our cultural and educational identity, and eliminating them sends a message of disconnection from deeply ingrained traditions with undeniable emotional value for families,” said a parent, who asked to be identified only by the initials A.J.C.  “This decision has a direct and very negative impact on work-life balance, as it drastically reduces the actual time our children, as expatriate families, can spend in Spain, Italy or Portugal with their grandparents and relatives. It unjustifiably limits one of the few periods of the year when it is possible to strengthen these essential family bonds.” Spanish parents have sent a letter to the country’s permanent representation to the EU asking for help, and gathered signatures from MEPs this week to send a letter to Piotr Serafin, the European commissioner for budget and public administration. The letter, seen by POLITICO and bearing 38 signatures, asks Serafin to officially recognize “the special relevance of Three Kings Day for Spanish families” and to “adopt a solution consistent with the founding principles of cultural diversity and mutual respect between Member States.”

LONDON — David Cameron wrongly refused to give the intelligence powers watchdog access to security documents while he was foreign secretary, a new report shows. Details revealed by the office of the Investigatory Power Commission (IPCO) — which oversees the powers used by Britain’s intelligence and investigatory agencies — show that in July 2024, Cameron refused to allow the watchdog to view top-level information as he believed “the documents fell outside [its] remit.” The IPCO said this was the first time it had been refused access to a document by “any public authority” and “took this extremely seriously to avoid a disturbing precedent being set,” adding that the incident risked undermining trust in the oversight of the powers of Britain’s intelligence services. The annual report, published on Tuesday, said the watchdog had been made aware of documents referenced in “section 7 Intelligence Services Act 1994 (ISA) authorisations” — known as “James Bond” licenses, which allow ministers to approve the overseas conduct of intelligence officers that would otherwise be unlawful. The commissioner, Brian Leveson, “personally reviewed” the matter and concluded that Cameron had “erred in his analysis of relevance and remit.” The watchdog then submitted a formal request to the new foreign secretary, David Lammy, following the 2024 general election, to review the case under its “powers to compel disclosure of documents.” The documents were handed over in September 2024. “This episode involved a departure from the highly transparent manner in which the FCDO normally engages with IPCO and we are confident lessons have been learned,” the report said. “It should serve as a reminder to all public authorities of the importance of absolute transparency in maintaining public trust and confidence when it comes to the oversight of covert powers: it is for IPCO to determine the relevance of documents and we will pursue any instance of non-disclosure using all means available to us.” The Foreign Office refused to comment when approached by POLITICO. David Cameron and David Lammy were both approached for comment.

The Bank of England is set to cut interest rates on Thursday, after lower-than-expected inflation figures and signs of a weakening jobs market. Headline inflation slowed to 3.2 percent in November, from 3.6 in October, the Office for National Statistics said on Wednesday. That was the lowest since March and a much clearer drop than predicted by analysts, who had forecast a rate of 3.5 percent. “A cut tomorrow should be a no-brainer, with another to follow in February,” Peel Hunt chief economist Kallum Pickering said via social media, pointing to “No growth since summer, a labor market that is rapidly cooling, and a big downside surprise to inflation across the board in November.” The news comes only a day after labor market data from the ONS showed the unemployment rate rising to its highest level in over four years in October. The economy has struggled for growth in the second half of this year, after a sugar rush in the first quarter in which exporters rushed to get their goods to the U.S. before President Donald Trump could impose trade tariffs. The hangover from that — and the lingering uncertainty over the global economic outlook caused by Trump’s trade policy — has been severe. But at the same time, an unwelcome rise in inflation has stopped the Bank of England from cutting interest rates more quickly to support the economy. A raft of hikes in government- controlled prices such as energy bills and rail fares meant that inflation was rising for much of the year, leading it to peak at 3.8 percent in September. That was also partly due to companies passing on increases in labor costs due to a 6.7 percent hike in the National Living Wage and an increase in employers’ National Insurance contributions. Panmure Liberum chief economist Simon French said the wide range of goods and services now showing softening price trends showed that demand is now so weak that companies are having to absorb those price increases themselves instead. The government will be particularly relieved to have seen politically sensitive food prices, which have been a constant bugbear for the last couple of years, making the biggest contribution to the slowdown in inflation in November. Prices for clothing and footwear and for discretionary services such as restaurants and hotels also fell slightly. “As Christmas gifts go, this is a most welcome one,” said Danni Hewson, head of financial analysis at AJ Bell. “It’s the time of year when people put a few more things in their supermarket trolley, so news that food and alcohol inflation has fallen will be a boon for cash-strapped families.” The Bank has consistently said that inflation would fall once those factors passed out of the annual calculations, given that the underlying weakness of the economy. However, with the worst bout of inflation in half a century still fresh in everyone’s minds, it has been forced to keep the pace of policy easing “gradual and cautious”. Peel Hunt’s Pickering said that the scale of the slowdown could be enough to have some members of the Monetary Policy Committee voting for a half-point cut in the Bank Rate to 3.5 percent on Thursday. However, the consensus remains for a quarter-point cut to 3.75 percent. The pound still fell over half a cent against the dollar in response to the numbers, as traders penciled in more scope for easing next year, while the government’s borrowing costs in the bond market also fell.

LONDON — In February Britain’s cash-strapped Labour government cut international development spending — and barely anyone made a noise. The center-left party announced it would slice the country’s spending on aid down to only 0.3 percent of gross domestic income — from 0.5 percent — in order to fund a hike in defense spending. MPs, aid experts and officials have told POLITICO that the scale of the cuts is on a par with — or even exceeding — those of both the previous center-right Conservative government or the United States under Donald Trump. This leaves Britain’s development arm, once globally envied as a vehicle for poverty alleviation, a shadow of its former self. The move — prompted by U.S. demands to up its NATO spending, and mirroring the Trump administration’s move to gut its own USAID development budget — shocked Labour’s progressive MPs, supporters and backers in the aid sector. But unlike attempted cuts to British welfare spending, the real-world backlash was muted, with the resignation of Britain’s development minister prompting little further dissent or change in policy. There was no mutiny in parliament, and only limited domestic and international condemnation outside of an aid sector torn between making their voices heard — and keeping in Whitehall’s good books over slices of the shrinking pie. Some fear a return grab over the aid budget could still be on the cards — but that the government will find that there is little left to cut. Gideon Rabinowitz, director of policy and advocacy at Bond, the U.K. network for NGOs, warned that, instead of “reversing the cuts by the previous Conservative government, Labour has compounded them, and lives will be lost as a result.” “These cuts will further tarnish the U.K.’s reputation as it continues to be known as an unreliable global partner, breaking Labour’s manifesto commitment,” he warned. “The Conservatives started the fire, but instead of putting it out, this Labour government threw petrol on it.” ‘IT WAS THE PERFECT TIME TO DO IT’ When Prime Minister Keir Starmer announced the cut to international aid — a bid to save over £6 billion by 2027 — Labour MPs, including those who worked in the sector before being elected, were notably silent. The move followed a 2021 Conservative cut to aid spending — from 0.7 percent in the Tory brand-rebuilding David Cameron years down to 0.5 percent. At the time, Labour MPs had met that Tory cut with howls of outrage. This time it was different. Some were genuinely shocked, while others feared retribution from a Downing Street that had flexed its muscles at MPs who rebelled on what they saw as points of conscience. “No one was expecting it, so there was no opportunity to campaign around it,” said one Labour MP. “Literally none of us had any idea it was coming.” Remaining spending is largely mandatory contributions to organizations such as the World Bank. | Daniel Slim/AFP via Getty Images The same MP noted that there are around 50 Labour MPs from the new 2024 intake who had some form of development background before coming into parliament. Yet they were put “completely under the cosh” by Downing Street and government whips. “It was the perfect time to do it,” the MP said. A number of MPs who might have been vocal have since been made parliamentary private secretaries — the most junior government role. “They have basically gagged the people who would be most likely to be outspoken on it,” the MP above said. The department’s ministerial team is now more likely to be loyal to the Starmer project. “I just felt hurt, and wounded. We were stunned. None of us saw it coming,” said one MP from the 2024 cohort, adding: “They priced in that backlash wouldn’t come.” But they added: “If we were culpable so were NGOs, too inward-looking and focused on peripheral issues.” The lack of outcry from MPs would, however, seem to put them largely in step with the wider British public. Polling and focus groups from think tank More in Common suggest that despite the majority of voters thinking spending on international aid is the right thing to do in a variety of circumstances, only around 20 percent of the public think the budget was cut too much.  The second new-intake Labour MP quoted above said the policy was therefore an “easy thing to sell on the doorstep,” and “in my area, there’s not going to be shouting from the rooftops to spend more money on aid.” DIMINISHED AND DEMORALIZED The cuts to aid come at a time when Britain’s Foreign Office is undergoing a radical overhaul. While the department describes its plans as “more agile,” staff, programs and entire areas of focus are all ripe for cuts to save money. The department is looking to make redundancies for around 25 percent of staff based in the U.K. MPs have voiced concern that development staff will be among the first to make the jump due to the government’s shift away from aid. The department insists that no final decisions have been taken over the size and shape of the organization. Major cuts are expected across work on education, conflict, and WASH (Water, Sanitation, and Hygiene.) The government’s Integrated Security Fund — which funds key counter-terror programs abroad — is also looking to scale back work abroad which does not have a clear link to Britain’s national security. The British Council — a key soft-power organization viewed as helping combat Chinese and Russian reach across the world — told MPs it is in “real financial peril” and would be cutting its presence in 35 of the 97 countries it operates. The BBC’s World Service is seeing similar cuts to its global reach. The Independent Commission for Aid Impact (ICAI), the watchdog for aid spending, is also not safe from the ax as the government continues its bonfire of regulators. The FCDO did not refute the expected pathway of cuts. Published breakdowns of spending allocations for the next three years are due to be published in the coming months, an official said. A review of Britain’s development and diplomacy policies conducted by economist Minouche Shafik — who has since been moved into Downing Street — sits discarded in the department. The government refuses to publish its findings. Aid spending was spared a repeat visit by Chancellor Rachel Reeves in her government-wide budget last month — but that hasn’t stopped MPs worrying about a second bite. | Pool Photo by Adrian Dennis via Getty Images The second 2024 intake MP quoted earlier in the piece said that following the U.S. decisions on aid and foreign policy “there was an expectation that the U.K., as a responsible international partner, as a leader on a lot of this stuff, would fill the gap to some extent, and then take more of a leadership role on it, and we’ve done the opposite.” NOTHING LEFT TO CUT Aid spending was spared a repeat visit by Chancellor Rachel Reeves in her government-wide budget last month — but that hasn’t stopped MPs worrying about a second bite. While few MPs or those in the aid sector feel Britain will ever return to the lofty heights of its 0.7 percent commitment, they predict there will be harder resistance if the government comes back for more. “I don’t think they’re going to try and do it again, as there’s no money left,” the second 2024 intake MP said. But they pointed out that a large portion of the remaining aid budget is spent on in-country costs such as accommodation for asylum seekers. Savings identified from the asylum budget would be sent back to the Treasury, rather than put back into the aid budget, they noted. Remaining spending is largely mandatory contributions to organizations such as the World Bank or the United Nations and would, they warned, involve “getting rid of international agreements and chopping up longstanding influence at big international institutions that we are one of the leading people in.” The United Nations is already facing its own funding crisis as it struggles to adjust to the global downturn in aid spending. British diplomat Tom Fletcher — who leads the UN’s humanitarian response — said earlier this year that the organization has been “forced into a triage of human survival,” adding: “The math is cruel, and the consequences are heartbreaking.” The government still has a commitment to returning to 0.7 percent of GNI “as soon as the fiscal circumstances allow.” The tests for this ramp back up were set out four years ago. Britain must not be borrowing for day-to-day spending and underlying debt must be falling. The last two budgets have forecast that the government will not meet these tests in this parliament. FARAGE CIRCLES In the meantime, Labour’s opponents feel emboldened to go further. Both the Conservatives and Reform UK have said that they would further cut the aid budget. The Tories have vowed to slice it down to 0.1 percent of GNI, while Nigel Farage’s Reform UK is eyeing fresh cuts of at least by £7-8 billion a year. A third 2024 Labour MP said that there was a degree of pressure among some colleagues to match the Conservatives’ 0.1 percent pledge. Though no country has gone as far as Uganda’s Idi Amin in setting up a “save Britain fund” for its “former colonial masters,” Britain’s departure on international aid gives space for other countries wanting to step up to further their own foreign policy aims. The space vacated by Britain and America has prompted warnings that China will step in, while countries newer to international development such as Gulf states could try and fill the void. Many of these nations are unlikely to ever fund the same projects as the U.K. and the U.S., forcing NGOs to look to alternate donors such as philanthropists to fund their work. “There’ll be a big, big gap, and it won’t be completely filled,” the second new intake MP said. An FCDO spokesperson said the department was undergoing “an unprecedented transformation,” and added: “We remain resolutely committed to international development and have been clear we must modernize our approach to development to reflect the changing global context. We will bring U.K. expertise and investment to where it is needed most, including global health solutions and humanitarian support.”

The EU will on Thursday unveil plans to supercharge its finance industry, tearing up swathes of rules in a bid to take on Wall Street. The package, which is massive in scope and ambition, would amend at least 10 financial laws to crack down on protectionism and unclog the EU’s financial plumbing. But Brussels’ ambitions to create a U.S.-style financial market will reopen political wounds, especially its plan to create a powerful EU watchdog for financial markets. Despite the bloc’s urgent need for private investment, progress could be bogged down by political divisions over the strategy. “If we’re stuck in a never-ending discussion about how to organize supervision … that will not take us closer to our objective,” Swedish Minister for Financial Markets Niklas Wykman said. The Commission’s overarching goal is to remove barriers to investment in the bloc, allowing more money to flow to struggling businesses so the EU can better keep up with economic powerhouses like the U.S. and China. With national budgets under strain from a bruising pandemic and years of inflation, Brussels is hoping to unlock €11 trillion in cash savings held by EU citizens in their bank accounts to breathe life into the economy. It plans to do that by breaking down technical barriers and busting protectionism between the EU’s 27 national money markets, as well as by changing rules that create national barriers to finance flows and by creating a powerful EU watchdog for financial markets. The EU’s finance chief, Maria Luís Albuquerque, who has led work on the revamp, told POLITICO in an interview: “It’s going to be a difficult discussion, of course, but these are the ones worth having, right?” | Dursun Aydemir/Anadolu via Getty Images Some capitals, though, view the proposal as a power grab and are determined to keep oversight of financial markets at the national level. And there are other tweaks in the package that will dredge up painful recent debates over issues like crypto rules or trading data. Countries are already warning that the Commission should keep its nose out of their business. Sweden, the EU’s best-in-class country for financial markets, has warned the EU executive not to interfere with any rules but instead to focus on boosting the appetite of EU citizens to invest in products like stocks and bonds, rather than parking their cash in savings accounts. Supervision is “not the problem and it’s not the solution to the problem,” Wykman told POLITICO. Among other ideas the Commission was mulling ahead of the official publication — according to documents seen by POLITICO — are a stronger EU-wide public ‘ticker tape’ of trading data, an expanded pilot program for decentralized finance to include all products and crypto firms, and a reduction in paperwork to make it easier to sell investment funds across the EU. The plans are sure to please some industry players, like stock exchanges or central securities-depositary groups that operate in multiple EU countries. But they will also inevitably be opposed by others, such as asset managers who are reluctant to be subject to increased EU oversight, or stock exchanges that don’t want to see their pricey trading data services undercut by a stronger public EU ticker tape. The technical shifts, plus the idea of an EU-wide watchdog, are ambitious but are also reminders of how limited the Commission’s powers are compared those deployed by EU countries at the national level. The Commission can’t make game-changing reforms in areas like national pensions, taxation or insolvency law for businesses, all of which are major obstacles to a single money market. Nor will many national governments spend the political capital needed to make domestic reforms for the sake of the EU economy. Nonetheless, the Commission is sticking to its guns. The EU’s finance chief, Maria Luís Albuquerque, who has led work on the revamp, told POLITICO in an interview: “It’s going to be a difficult discussion, of course, but these are the ones worth having, right?”

LONDON — Nigel Farage’s second-in-command called for a rethink of the U.K.’s interest rate-setting committee in a fresh sign that a Reform UK government could intervene in Britain’s independent central bank. Richard Tice, the deputy leader of the populist-right party that’s surging in U.K. polls, told POLITICO in an interview that there should be a debate over potentially sweeping changes to the make-up and role of the Bank of England’s Monetary Policy Committee (MPC).  “It’s not unreasonable to check whether or not we’ve got the membership of the MPC right. I mean, it’s almost 30 years,” he said, referencing the 1997 establishment of the MPC. “So you could say, well, have we got the membership right? Have we got the number of government representatives right? Should they or shouldn’t they have a vote? Have we got the mandate right?”  He added: “Should it have a growth mandate? We should have that debate.”  The BoE’s rate-setting committee is made up of nine members, including Governor Andrew Bailey, four senior central bank executives, and four independent external members appointed by the chancellor. A representative from the U.K. Treasury joins MPC meetings but is not allowed to vote.   Monetary policy has become increasingly politicized since the Covid-19 pandemic, after which inflation soared to double digits and the BoE raised rates to their highest levels in 15 years. The International Monetary Fund has warned the U.K. faces the highest inflation in the G7 this year and next.   Tice’s comments come ahead of a speech in the City of London Wednesday, where he is expected to set out a wide-ranging aspiration for financial services deregulation should Reform UK enter government in Britain’s 2029 general election. The deputy leader said the U.K. needs a “complete sea change” in how risk is approached in the City, and called for further red tape cutting on banks, hedge funds and other City giants. “No one’s stepping back and asking big, philosophical questions,” he said.   Tice told POLITICO his party is “happy” with the BoE’s independence, but said it is “ridiculous” that “no one dares to” question the performance of the central bank despite the U.K. “outsourcing all responsibility for massive issues that affect ordinary people.”  He argued the BoE had “failed” under Conservative Liz Truss, who was forced out as prime minister after bond yields spiked in the wake of a tax-cutting budget, leading banks to increase their lending rates. Tice accused City regulators of “missing” the issue of liability-driven investments (LDIs), which increased the strain on pension funds during that period, and said the Bank of England “could have actually stepped in and prevented the carnage.”  Truss has repeatedly blamed the Bank of England for failing to anticipate the market consequences of her budget. The central bank intervened after her mini-budget to calm the markets by implementing an emergency bond buying scheme.  WIDER REFORM Reform leader Farage, who is set to give a speech in the City Monday on his broader vision for the economy, has gone further, saying Bailey has “had a good run” and he “might find someone new” if the party wins the next election.  Bailey’s term is due to end in 2028, before the election. Tice did not rule out the prospect of a Reform government forcing out an underperforming central bank governor in future, saying: “At the end of the day, any public official has to be accountable for their performance.”  However, he declined to liken Reform’s stance to Donald Trump’s approach to the Federal Reserve, after the U.S. president repeatedly attempted to get rid of chair Jerome Powell.  Reform UK is currently ahead in the polls, as Britain’s Labour government continues to struggle with its messaging on the economy, immigration and frustration within Prime Minister Keir Starmer’s top ranks. Reform leader Nigel Farage, who is set to give a speech in the City Monday on his broader vision for the economy. | Mark Kerrison/Getty IMages Tice argued Labour — which has made growth its primary objective by rolling back 2008 financial crisis legislation — is adding rather than removing regulation, and accused it and the opposition Conservatives of “tinkering around the edges.”  “We’re not going to create any form of meaningful growth under the current trajectory of this government, or under the trajectory of any Conservative plans,” he said. “We are heading towards impoverishment and growth has relentlessly declined as borrowing has relentlessly increased, particularly if you look per head. And it requires a complete sea change in the way that we think about risk and reward.”  Asked whether a Reform government would go further than Labour on deregulation, Tice said: “Yes. We want to ask some very big questions about how we do things.”  Tice also argued that regulators such as the Financial Conduct Authority — which Farage hopes to strip of its role regulating banks — have “utterly failed to do their job.”  Asked if he believes Britain has now moved on enough since the 2008 financial crisis to strip away “protections,” he replied: “There are all sorts of different reasons why the ’08 crash happened. But we supposedly had all the mechanisms of protection there, and they failed. No one was properly held to account.” 

DUBLIN — Independent socialist Catherine Connolly swept to a landslide victory Saturday to become Ireland’s next president, dealing a record-breaking rebuke to the two center-ground parties of government. Jubilant supporters of the 68-year-old Connolly, a lawmaker from the western city of Galway, embraced and kissed her as final results from Friday’s election were announced at the Dublin Castle count center. In her victory speech, Connolly struck an immediate note of unity. She stood side by side with Ireland’s government leaders — and pledged to challenge the far right and its anti-immigrant agenda. “Together we can shape a new republic that values everybody, that values and champions diversity … and the new people that have come to our country,” she said. “I will be an inclusive president for all of you.” Connolly won a record 63.4 percent of valid votes. Heather Humphreys of the government coalition party Fine Gael finished a distant second with 29.5 percent. Connolly’s triumph shattered the previous record set in 1959 when Eamon de Valera, the towering figure of 20th-century Irish politics, won his first term as president with 56.3 percent support. On Nov. 11, Connolly will succeed her fellow Galway socialist Michael D. Higgins, Ireland’s president since 2011, who was constitutionally barred from seeking a third seven-year term. Finishing in third and last place Saturday was Jim Gavin of the largest government party, Fianna Fáil, who won barely 7 percent of votes. Gavin, a political novice hand-picked by Prime Minister Micheál Martin, remained on the official ballot despite quitting the race midway after admitting he had pocketed €3,300 in excess rent from a tenant. Connolly won, in no small part, thanks to backing from Ireland’s five left-wing parties, most crucially Sinn Féin. All stood aside to give her a clean run on an anti-government platform, a political first for the normally fractious left. While the left celebrated from Dublin Castle to Galway, Ireland’s disgruntled conservatives left their own mark on the election — by vandalizing their ballots in unprecedented numbers. More than 200,000 ballots — or about one of every eight cast — had to be discarded. Many voters had written in the names of their own invalid choices, or drawn disparaging X marks across all three candidates. Others defaced their ballots, often with anti-immigrant messages expressed in nativist or racist terms. Their alienation reflects how the government parties, Fianna Fáil and Fine Gael, since the 1990s have largely ditched their previous bonds with Catholic conservatism and have become, like Connolly and the wider left, socially progressive and welcoming to immigrants. A Catholic conservative, Maria Steen, narrowly failed to qualify for the ballot, falling two short of the required backing from 20 lawmakers. Mixed martial arts fighter Conor McGregor, who often denounces immigrants in his social media posts, tapped out after attracting virtually no official support. Kevin Cunningham, managing director of the polling firm Ireland Thinks, called the volume of spoiled votes “enormous.” He found that more than two-thirds of protesting voters had expressed support for Steen. The final week of campaigning coincided with one of the biggest flare-ups of racist sentiment since downtown Dublin was wracked by rioting in November 2023. On Tuesday and Wednesday nights, crowds of up to 2,000 people clashed with riot police protecting Citywest, a hotel and conference center southwest of Dublin that has been turned into the state’s biggest shelter for asylum seekers. That area registered one of the highest rates of spoiled ballots. And on Friday, Sinn Féin leader Mary Lou McDonald, who had opted not to seek the presidency herself, was subjected to vulgar threats from an anti-immigration activist as she canvassed in her central Dublin constituency for Connolly. That man, who posted video footage of his verbal assault on McDonald and other Sinn Féin canvassers, was arrested Saturday. Humphreys — who had stepped into the breach when Fine Gael’s original candidate, former European Commissioner Mairead McGuinness, quit the race citing health problems — conceded defeat hours before the official result. Humphreys, too, expressed worries about the rising level of social media-driven harassment. Humphreys, a member of the Republic of Ireland’s tiny Protestant minority, said she hadn’t regretted running despite suffering a barrage of online insults belittling her family’s background. She said that vitriol had demonstrated that her country wasn’t yet ready to reconcile, and potentially unite as Irish nationalists want, with Protestants in the neighboring U.K. territory of Northern Ireland. “My family and I were subject to some absolutely awful sectarian abuse. As a country, I thought we had moved on from that,” Humphreys said. “If we’re ever to have a united Ireland, we have to respect all traditions.”

BRUSSELS — EU leaders are set to instruct the European Commission to design a legal proposal to use billions of euros in Russian frozen state assets to fund a massive loan to Ukraine, after Belgium signaled it would not stand in the way. The controversial proposal, if adopted, could release up to €140 billion to fund Ukraine’s war effort for another two to three years, using Russian state assets that were immobilized after its full-scale invasion of Ukraine in February 2022. The European Commission, which has executive power in the EU, first floated the idea in September, but has been waiting for the explicit blessing of European heads of state and government before it moves ahead with a concrete proposal. This is likely to come when the 27 EU leaders hold their quarterly European Council meeting in Brussels on Thursday. In preparation for the meeting, EU ambassadors informally agreed draft European Council conclusions seen by POLITICO that call on the Commission to put forward a proposal that is “underpinned by appropriate European solidarity and risk-sharing.” This text is “the political go-ahead” for the Commission to issue a proposal after Thursday’s meeting, a Belgian diplomat said. “I’m not so worried about Belgium” creating problems in the European Council, echoed an EU diplomat from another country. Belgium has taken a cautious approach because it hosts Euroclear, the financial body that holds the frozen assets, and fears a court could force it to repay the money itself. But the Belgian diplomat told POLITICO the country would not oppose the call this Thursday for the Commission to come forward with a proposal. Still, even if the Commission gets a green light, its legal proposal will have to survive weeks of difficult negotiations with national capitals. AN EXISTENTIAL MOMENT For Ukraine, the outcome could prove existential. Without the EU loan, Ukraine faces a $60 billion budget shortfall over the next two years. With the U.S. effectively pulling reliable support for the war-torn country, European officials privately describe this initiative as the “last bullet” to strengthen Kyiv’s hand in peace talks with Russia. It comes as Washington’s inconsistent position on the conflict appeared to swing in Russia’s favor over the weekend. Securing the multi-billion “reparations loan” to Ukraine before U.S. President Donald Trump and Russia’s Vladimir Putin meet in Budapest over the coming weeks would be a major boost for Kyiv, undermining attempts to force it to make painful territorial concessions to Moscow. “The Russians are betting on our war fatigue, but the reparations loan can show Russia that Ukraine will be financially viable for the next two or three years,” said an EU diplomat who, like others quoted in this story, was granted anonymity to speak freely. BELGIUM’S RED LINES The Commission is confident it can design a plan that is legally sound and avoids accusations of expropriating Russian assets, according to officials briefed on the matter. The assets held by Euroclear are invested in Western government bonds that have matured into cash. The cash is now sitting in a deposit account with the European Central Bank that the Commission wants to send to Ukraine. In order for this plan to come to fruition, the Commission will still have to convince Belgium’s right-wing Prime Minister Bart De Wever — who has a knack for punchy comments — to give the loan his blessing. | Pool photo by Andreas Gora via Getty Images Brussels argues this does not amount to confiscation as Russia could still regain the frozen assets by paying post-war compensations to Ukraine — something that is, however, seen as very unlikely. In order for this plan to come to fruition, the Commission will still have to convince Belgium’s right-wing Prime Minister Bart De Wever — who has a knack for punchy comments — to give the loan his blessing. The country fears it could end up having to repay the loan if a court ruling compels the EU to return the money to Russia. The Commission described this scenario as very unlikely as Russian court rulings wouldn’t be enforceable in Europe. Separately, the Commission floated a number of concessions to quell Belgium’s concerns in an informal document on Thursday. But these guarantees are “too broad and don’t answer all the questions” raised by De Wever in a previous statement, the Belgian diplomat added. In order not to single out Euroclear, the Commission said it will explore using €25 billion of Russian assets held by bank accounts and depositories elsewhere in the bloc — but admitted that operation is legally tricky. Belgium fears that investors from countries such as China will withdraw their investments from Euroclear over fears that their funds will also be taken away for political reasons. In a further concession, the EU executive suggested a safety net that allows the Commission to instantly lend money to countries if they ever have to repay the loan. This is meant to reassure Belgium that it won’t be left alone, and that other EU countries will contribute in the worst-case scenario. Even without Belgium’s final approval on Thursday, the Commission can still put forward a legal proposal after the leaders’ meeting. “Belgium has put forward a maximalist position in order to compromise once there is a proposal on the table,” said the first EU diplomat.

The Court of Justice of the European Union ruled Thursday that pets can be considered “baggage,” dealing a setback to pet owners seeking higher compensation for animals lost during international flights. The decision comes from a case in which a dog escaped from its pet-carrier at Buenos Aires airport in October 2019 and was never recovered. Its owner had sought €5,000 in compensation from Iberia airlines, which admitted the loss but argued that liability is limited under EU rules for checked baggage. The high court concluded that the 1999 Montreal Convention, which governs airline liability for baggage, applies to all items transported in the hold, including pets. While EU and Spanish laws recognize animals as sentient beings, the Luxembourg-based court emphasized that the Montreal Convention’s framework is focused on material compensation for lost or damaged items. Airlines are therefore not obligated to pay amounts exceeding the compensation caps set under the Montreal Convention unless passengers declare a “special interest” in the item, a mechanism designed for inanimate belongings. “The court finds that pets are not excluded from the concept of ‘baggage’. Even though the ordinary meaning of the word ‘baggage’ refers to objects, this alone does not lead to the conclusion that pets fall outside that concept,” the court said in a statement. Thursday’s ruling reaffirms the current framework, limiting airlines’ liability for lost pets unless passengers make a special declaration to raise coverage. For airlines operating in Europe, it offers legal certainty and shields them from larger claims. The court’s judgment will guide national courts in balancing international air transport law with EU animal welfare standards.