The present analysis considers four major geopolitical challenges the EU is currently facing and their possible effect on the four areas of competence of Eurofound. Its purpose is to support the holistic matrix approach of work planning, adopted with the multiannual programme of Eurofound for the period 2025-2029. As the current international situation can be characterised with many uncertainties, the developments of these factors and their correlation should be closely monitored in the future.
The expected impact is summarized in the following table:
|
Impacted areas |
Wars |
Trade obstacles |
Defence/ Security |
Strategic Autonomy (technological, rare materials, supply chains, energy) |
|
Working conditions |
None to low |
Low |
Low |
Low to medium |
|
Employment |
Low to medium |
Low to medium |
Medium to high |
Medium to high |
|
Industrial relations |
None |
Medium to high |
Low to medium |
Low to medium |
|
Living conditions |
Low to medium |
Low |
Low |
Medium |
- Impact of the wars
The last years have been marked by two wars raging in the proximity of the EU – the war in Ukraine and the aggravated conflicts in the Middle East, involving multiple parties and provoking massive destruction and loss of human lives.
The Russian aggression in Ukraine has been continuing for more than 3 years and already costs hundreds of thousands of human lives, enormous destruction and huge material resources. The EU decisively took the side of the attacked country. This was motivated by the adherence to the international law and the defence of the underlying values of peace, democracy and human rights. The actions of the governments were largely supported by the public opinion. EU has been cautious not to engage in a direct military involvement in order to avoid the risk of a global conflict. The engagement of the Union is twofold – on one side to support the struggle of the Ukrainians to preserve their sovereignty and on the other – to place a substantial economic pressure on the aggressor, creating incentives to limit the scale and the length of the aggression.
The support for Ukraine and the pressure on Russia came at a cost. It pushed the inflation upwards, absorbed considerable public resources to provide aid, produced the largest in the last decades immigration wave in the EU and prioritized the energy independence.
Due to the uncertainty of the energy supplies and the blocked export of cereals and fertilizers from Ukraine and Russia, prices soared, still before the COVID-19 shock was absorbed. In the midst of the protracted conflict and the supply uncertainties, the inflation picked at 11.5 % on annual basis in October 2022. Later, the inflation rate started dropping and stabilized in the 2-3% bracket only from the beginning of 2024.
One of the major impacts of the war was on the energy supply. The EU drastically decreased its imports of natural gas from Russia. This was mostly achieved by finding alternative suppliers and decreasing the use of fossil fuels. The latter though produced additional challenges. The consumption of natural gas in the EU decreased by 18% between August 2022 and May 2024, while the installation of solar panels in 2023 was 60% higher than in 2021[1]. The incentives for the fast deployment of renewables increased the energy prices and threatened the stability of the grids as seen in the electricity failure in Spain and Portugal in 2025. Hence, despite the fact that the decreased dependence on Russia did not produce soaring of the price of the natural gas and the peak of €340/MWh in 2022 was stabilised to €35-50/MWh in the period after February 2023[2], the rapid push to renewables, supported by the carbon taxes, the higher need for further investments and the geopolitical instability increased the electricity prices for industrial users in the EU from around €75MWh in 2021 to €100 and even in some countries reaching €190MWh in 2024[3]. Compared to the much lower prices, available for most of the world competitors, this suppressed the growth in Europe.
The economic impact of the war in Ukraine also includes the large amounts of financial support provided by the EU and the member countries. By the end of 2024, it is estimated that €132 billion were provided to Ukraine as financial or humanitarian support and military aid. This is a considerable fiscal effort. The share of the financial aid, provided by Estonia for example amounts to 2.4% of the GDP of the country.[4]
Hence, even though the inflation and the prices of fossil fuels were brought under control still in 2023, the high energy prices and the budgetary allocations for financial support for Ukraine tend to maintain their high levels. Despite the efforts to counter the negative effects in both areas, a short-term solution is not foreseeable.
How do these developments are expected to further influence the areas of interest of Eurofound?
Working conditions – minimum to no effect. The war in Ukraine does not have a direct impact on the working conditions in Europe. The indirect impact is mainly expected through the slower economic growth and the diversion of public resources towards defence.
Employment – low to medium effect. The war in Ukraine has a double-edged effect on the EU labour markets. The high rate of inclusion of the Ukrainian refugees to the EU labour market is on the positive side. At the end of April, Eurostat estimated the number of Ukrainian refugees in the EU at 4.26 mln[5]. Other sources show an even larger number – 6.4 mln[6]. Among those in working age, at the end of 2022 already 66% were at employment, according to the Eurofound research[7]. That represents more than 1% of the EU labour force and helps addressing some of the acute labour shortage problems. It can be expected once the war ends, to have a massive return of the refugees to Ukraine, although a substantial number will probably remain in the EU if the regulations allow. On the negative side, we could mention the effect of the high electricity prices. According to the ECB estimates, 10% increase of the electricity prices would lead to 1-2% direct job losses in the most energy intensive industries. This effect would be mostly visible in highly industrialized regions as South Germany and Northern Italy. The knockout effect could be even larger. One position lost in an energy intensive industry leads to up to five job losses in auxiliary industries, according to the ECB estimates[8].
Social dialogue – no impact. Even though the war in Ukraine does not have a direct impact on the industrial relations in Europe, one should watch the indirect influence, through the developments with the economic growth, trust in the institutions and in the established social contracts.
Living conditions – low impact to medium in mid-term perspective. Slowing of growth and diversion of fiscal resources, resulting from the war in Ukraine inevitably impacts the living conditions of the EU citizens. In fact, the integrity of the social fabric is not yet restored after a cascade of multiple consecutive crises in the last 15 years – the economic and financial crisis of 2008, COVID-19, the migration, caused by tensions in the Middle East, Afghanistan, Africa, the Russian war in Ukraine and lately – the disruptive course of the US Trump administration. The feeling of insecurity, the increased gaps in the EU societies across income groups, regions and age cohorts, the lack of stable political and economic environment erode the trust in the institutions and create an ecosystem, encouraging radical nationalist and extreme factors. Despite the efforts both at EU and national levels to address the most acute problems of the societies like risk of poverty, housing, supporting youth, child and elderly care, anti-establishment, nationalist and even extreme groups find their representation in the elected bodies at all levels. One of the strong appeals of the new political wave is to nationalise many policies. Therefore, if this trend is set to continue, we can expect less EU policies addressing the acute living standards’ problems and shift to national solutions. This would challenge the convergence in the EU and the use of tools and policies, where the EU solutions have a value added over the national ones.
- Disturbed trade
The second term in office of the US president Donald Trump started with a huge disruption of the existing commercial relations. His intention to turn the international trade into a considerable fiscal resource, to force companies to relocate in the US and slash non-tariff barriers for American exports produced a wave of uncertainty. Its immediate expression was the reaction of the stock markets and in particular – the souverain bonds markets. Many investors decreased their exposure to USD denominated assets and consequently, the price of the US government debt went up. This development led to more appetite and larger space allowed by the administration for negotiations with the main US partners. The original intentions of the US President were to drastically increase the tariffs for the main trade partners and at the same time push the businesses to relocate to the US and expand the accessibility of the foreign markets for the US producers. The implementation of such a strategy would lead to a complete destruction of the established multinational trade agreements and practices, unilaterally asserting the US interests by force. However, the reaction of the bond markets and the readiness of the main commercial partners as the EU, China, Canada and others to adopt retaliation measures, including limiting the access of the US companies to rare earth minerals opened the door for negotiations.
Although decreasing, the current share of the USA in the global trade of goods and services amounts to 9%. In total numbers that is nearly USD7,000 billion in 2023[9]. Potentially, the EU can be seriously affected by eventual trade and investment wars as the US is the largest international partner for trade in goods and services, the trade volumes reaching €1,600 billion in 2023. The mutual investments are estimated at €4,700 billion[10].
A recent analysis by Bruegel concludes that in the different scenarios, the impact of the US trade war threats would be small – not exceeding 1% of the GDP[11]. At the same time the expectations are that the declared intentions by President Trump are rather a bargaining tool as their implementation would hit much harder the US economy that has less options for diversification and substitution of the existing trade and investment flows with the EU. However, even imposing tariffs at a much lower scale, the negative effect in Europe would be focused and substantial in some countries, regions and industries. A clear example is Ireland, where the national economy is dependent on the US investments in pharmaceutical production and IT services.
The timing of the US political cycle and the pressure from business for clarity and certainty make most likely an agreement in short term. We can expect a positive solution as the main strength of the EU is in the trade relations. It is not likely that Europe would lower the non-tariff restrictions, especially these, related to health and safety standards. A possible area of compromise is on topics, related to the cooperation in fighting climate change or some large trade commitments, including for more fossil fuels imports from the US. A challenge for the EU will be to agree on the scope of possible counter tariffs as that would have a focused impact on some national economies and industries. On the positive side, the EU has a well-functioning mechanism of decision making on trade relations, a strong position in the WTIO and instruments as the created in 2023 anti-coercion tool.
In addition, the decision of the US president to impose tariffs on all partners simultaneously, created a new situation, where the EU could further advance the trade agreements with major partners as Latin America, Canda and China.
The issue of the relocation of investments is much less clear. What can be expected is that the US administration will continue to use both pressure and incentives to attract back industrial investments. This cannot be a rapid process however, and the EU could intensify further its efforts to stimulate onshoring, reshoring and nearshoring of the industrial investments. This process is tackled with the instruments of the industrial policy, as well as the stimulation for innovations and applied break through research.
How do these developments are expected to further influence the areas of interest of Eurofound?
Working conditions – low impact. The trade tensions are not expected to substantially impact the working conditions in Europe in short to medium term. In long term, in case they persist, they might influence the use of digital tools or contribute to changing the profile of the EU economy, these leading to changes in the working conditions. In this paper, it is assumed that policy makers and businesses in the EU will not engage in relaxing the standards for job quality. Indeed, that is a possibility, although it would not lead to better competitiveness, able to compensate the tariffs’ burden.
Employment – low to medium impact. However, in the unlikely case that a lasting trade war develops, some sectors as steel and aluminium production, pharmaceuticals, automotive, etc. might suffer a major impact. Business decisions to relocate production sites to keep or expand markets or decrease supply chain risks might also have a considerable impact. Depending on the particular motivation, investment decisions could go in both directions – off shoring and re shoring. In general, trade wars have high disturbance potential, due to the high uncertainty, among others. Hence, the employment trends need to be closely followed both at aggregate and sectoral levels.
Industrial relations – medium to high impact. Even though the basic scenario foresees low impact on employment of the possible trade wars, the social partners are expected to increase the focus and the intensity of their dialogue. Both the uncertainty and the possible changes should be at the core of the social dialogue, in order to prepare and where possible – prevent possible negative developments. The social partners are expected to intensify their contacts and be part of the solutions, consolidating forecasts and positions that would make decision making efficient and timely.
Living conditions – low impact. The tensions on the trade front shall not have a direct impact on the living conditions of the EU citizens. However slow economic growth and diversion of substantial fiscal resources to supporting sectors at risk can indirectly influence the availability and quality of some public services and further limit public investments, hence the quality of life. In the unlikely scenario, where the trade wars will be long and disruptive, the resulting high unemployment would also negatively affect the quality of life.
- Focus on defence/security
The Russian war in Ukraine brought defence and security at the centre of the EU debate. The aggression in 2022 came after the invasion in Georgia in 2008 and the occupation of Crimea and other Ukrainian territories in 2014. It became apparent that Russia is pushing the boundaries and testing the resistance against moving borders and areas of influence. The long decades during and after the cold war, when potential attacks were prevented by the fear of retaliation are gone. The Russia neighbours – the Baltic states, Poland, Finland, Sweden recalled their historic memories of wars and occupation. After Russia created a precedent in the post WWII Europe of annexing territories, the question where they would stop became legitimate. The fears of continuous Russian aggression were further aggravated by the stance of the Trump administration. Still in his first mandate the US President was objecting the EU overdependence from the USA in the area of defence. In his second term the pressure increased to the point that the EU allies in NATO started discussing to what extend they can rely on art.5 of the NATO Treaty, engaging all members in common defence. The Russian war in Ukraine and the US pressure brought the issue of a stronger European role in NATO and increased financing to the fore.
In March 2025 the European Commission presented a White Paper for European Defence – Readiness 2030, encouraging the member states to invest heavily in defence, to boost the defence industries and to close the defence gaps as identified by the European Council earlier in March. It builds on the recommendations of the Niinistö Report’ on strengthening EU’s civil and military preparedness and readiness, as well as the Draghi report. In addition, the European Commission also presented a package of financial levers to the EU member states as part of the ReArm Europe Plan/Readiness 2030. This package creates a financial instrument – SAFE that will generate debt at the capital markets and provide financial resources to the interested member states. Thirdly, the Commission invited the willing member states to to activate the national escape clause of the Stability and Growth Pact, which will provide them additional budgetary space to increase their defence spending, within the EU fiscal rules, surpassing the deficit ceilings, accepted for the European Semester[12]. In addition, in the NATO format, the EU members agreed to increase the defence spendings in medium term to 5% of the GDP – a substantial increase over the current target of 2%.
That means that over the next years, we can expect a substantial increase of the defence related expenditures. As a rule, these expenditures are financed by the national budgets. The solutions offered by the Commission suppose that the massive additional funds will be either borrowed at national level or by mutual debt, which will be gradually repaid in the coming periods.
How do these developments are expected to further influence the areas of interest of Eurofound?
Working conditions – low impact. These additional spendings will have no immediate effect on the working conditions. However, the prominence of the defence topic and the expected proposals for preparedness will certainly impact the world of work. It is possible that the preparedness will include particular security related knowledge, trainings or readiness at the place of work.
Employment – medium to high impact. The expected rapid increase of the public defence expenditures and the intended prioritisation of the EU industries will be a strong tool to boost the value creation, especially in the sectors, declared as priority – air and missile defence, missiles an ammunitions, drones and anti-drone systems, military mobility, AI and computing, including quantum computing, cybersecurity, strategic enablers (airlift, maritime awareness, combat capabilities, border security)[13]. In the current state of the economy, the availability of qualified labour force in these sectors might be one of the core limitations. This will also have a spillover effect on similar sectors due to the increased competition for labour force. The problems with labour shortages and adequate skills are expected to be very pertinent.
Industrial relations – low to medium impact. The involvement of the social partners in the implementation of the defence plans can substantially increase their efficiency in the defence industry sector. Agreeing and setting the standards for job quality, skilling and representation can substantially facilitate dealing with the labour shortages’ bottleneck. Social dialogue could also be beneficial for the restructuring of the economies and facilitating the mobility of labour. However, despite the potential of the social dialogue, the recent experience with the elaboration and monitoring of the National Recovery and Resilience Plans demonstrates a mixed picture across Europe[14]. It remains to be seen whether the social partners will play a role in the prioritisation of the defence and related industries.
Living conditions – low impact with a perspective to increase in long term. The risk for the living conditions is stemming mostly from the considerable increase of the public spending for defence purposes. Even though most of the additional funding will likely come from increased debt and not from reprioritisation of the public expenditures, the created liabilities will create additional budget pressure in the future, squeezing the expenditures for different public services. It is also expected, that the increased defence spendings will not be a one-off effort but rather a continuous commitment. This will reprioritize the national public expenditures with a high risk to negatively affect the maintenance of various public services. Boosting domestic military industry will have positive effects that will also have a fiscal side. However, when defence equipment or capabilities are purchased from another country, even if it is another member of the EU, the positive fiscal effects will go to the country of origin, and this will put a further strain on the national fiscal capacities of some member states.
- Strategic autonomy
The concept of strategic autonomy is not new for the EU. It leads to less dependence on foreign factors in strategically important areas. However, after COVID-19, when the functioning of the supply chains was deeply disturbed and the Russian aggression on Ukraine in 2022, when the dependency of the EU on Russian gas and oil became an issue of serious concern, the concept to become more autonomous gained a new momentum. EU followed major international players who have already established strategies for lower dependency on the international environment – the America First concept of the first term of Donald Trump and later – the Inflation Reduction Act under Biden, the Chinese Dual Strategy or the Indian Make in India initiative. In March 2022 the European Council adopted the Versailles Declaration, aiming at greater EU strategic autonomy in defence, energy supply and the economy[15].
As strategic autonomy is a very broad concept, we shall focus for the purposes of this analysis to the developments for assuring energy autonomy. It involves reducing its dependence on external energy sources, particularly fossil fuels, and increasing its capacity to produce and manage its own energy supply. To achieve these goals, the EU diversified the suppliers of fossil fuels, promoted the expansion of renewables, encourages the energy efficiency. Aiming to limit the Russia’s economic resources fuelling the war in Ukraine, the EU succeeded to decrease the import of natural gas from this country from 45% in 2022 to 19% in 2024, with the aim to completely stop these imports by 2027[16]. This will be a difficult decision as some central European countries as Hungary and Slovakia keep importing large quantities of Russian natural gas and block all pressure to look for alternative sources. Meanwhile, the EU succeeds in the diversification of the imports of fossil fuel resources and in the increase of the renewables share[17]. However, this comes at a cost.
The energy prices in the EU are considerably higher than those in the USA and China[18]. That is very much due to the large gas production in the US and the extensive use of coal in China. Whatever the reason, the energy price differential puts EU industries and households at a disadvantaged position. This is supposed to be mitigated using different instruments, including the Green Social Fund. After a peak in 2022, resulting from the uncertainty created by the war in Ukraine, the petrol and gas prices in Europe gradually decreased. A recent analysis of ECB predicts that in the next years the energy prices will actually represent a deflationary factor in Europe, while the inflation will mostly be driven by the changes of prices of services and food[19]. However, despite the positive developments in the last two years, where both the prices and the dependence of the EU on fossil fuel imports decrease, the uncertainty linked to the production and the export corridors of oil and gas from the Middle East, recently exacerbated by the Israeli strikes on Iranian petrol facilities, will negatively influence the price of carbon fuels on the international commodity markets. Therefore, the EU would stick to its commitments for CO2 emissions reduction in the future, most likely replacing gradually the fossil fuels with renewables and nuclear energy facilities.
How do these developments are expected to further influence the areas of interest of Eurofound?
Working conditions – low to medium effect. The Strategic Autonomy, in particular in the energy sector shall lead to further decreasing of the fossil fuels consumption. This will positively affect the world of work, especially in terms of health and safety conditions, energy saving and corporate social responsibility. However, this will assume higher costs for the employers at least for some time.
Employment – medium to high impact. The effect of the Strategic Autonomy can be seen not only through the lens of the green transition but also the digital transformation. If the EU aims at regaining its leading role in innovations and AI, it needs to create a space not only for the development of the new technologies but also for their implementation. This would mean, in middle to long term, shifts in the labour force in terms of knowledge and skills as well as adaptability to the changing requirements of the market.
Social dialogue – low to medium impact. A parallel could be made with the role of the social dialogue for the green transition and the digital transformation. It has the potential to be more efficient where its expands beyond job destruction/creation and addresses reskilling, mobility, innovations, introduction of AI and other tools.
Living conditions – medium impact. It is mostly linked to the cost of living and the energy costs in particular. The transition to strategic autonomy should have clear goals, bring more affordable energy for the consumers and decrease the unpredictability and price volatility. The transition process should guarantee a focus on the energy poverty and the most disadvantaged groups.
The dynamics of these geopolitical factors need to be closely followed and their impact on the Eurofound research areas analysed. The unstable environment will require to leave more flexibility in Eurofound’s research capacity in order to address the emerging developments in a timely manner.
[1] Energy prices and security of supply – Consilium
[2] https://tradingeconomics.com/commodity/eu-natural-gas
[3] https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog20250505~86c88d726c.en.html#:~:text=Persistently%20elevated%20energy%20prices:%20a,is%20above%20the%20EU%20average.
[4] https://www.ifw-kiel.de/topics/war-against-ukraine/ukraine-support-tracker/
[5] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Temporary_protection_for_persons_fleeing_Ukraine_-_monthly_statistics#:~:text=for%20March%202025.-,Where%20in%20the%20EU%20do%20people%20fleeing%20Ukraine%20go?,the%20statistics%20while%20undergoing%20renewal.
[6] https://www.statista.com/statistics/1312584/ukrainian-refugees-by-country/
[7] https://www.eurofound.europa.eu/en/publications/2024/social-impact-migration-addressing-challenges-receiving-and-integrating-ukrainian
[8] https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog20250505~86c88d726c.en.html#:~:text=Persistently%20elevated%20energy%20prices:%20a,is%20above%20the%20EU%20average.
[9] https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services
[10] https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/united-states_en#:~:text=The%20European%20Union%20and%20the,largest%20trading%20partners%20by%20far.
[11] The economic impact of Trump’s tariffs on Europe: an initial assessment
[12] https://defence-industry-space.ec.europa.eu/eu-defence-industry/introducing-white-paper-european-defence-and-rearm-europe-plan-readiness-2030_en
[13] Idem
[14] https://www.eurofound.europa.eu/en/publications/2024/social-governance-recovery-and-resilience-facility-involvement-national-social
[15] https://www.consilium.europa.eu/media/54773/20220311-versailles-declaration-en.pdf
[16] https://commission.europa.eu/news-and-media/news/roadmap-fully-end-eu-dependency-russian-energy-2025-05-06_en
[17] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_imports_of_energy_products_-_latest_developments
[18] https://www.ciphernews.com/articles/this-one-chart-shows-europes-struggle-with-high-energy-prices/
[19] Eurosystem staff macroeconomic projections for the euro area, June 2025