Trends in 2024

In 2024, Europe found itself navigating a landscape defined by profound geopolitical, economic, and political shifts. The enduring conflict between Russia and Ukraine continued to shape the continent’s strategic priorities, prompting stronger alignment with NATO, and efforts to enhance its strategic autonomy. Similarly, the conflict in the Middle East had significant repercussions for Europe, leading to a surge in refugee flows and increased political polarization within the European Union. Economically, the EU faced the dual challenge of sustaining recovery from recession while contending with inflationary pressures and energy supply concerns, due to reduced dependence on Russian oil and gas. These evolving trends highlight Europe’s evolving dynamics in an increasingly multipolar world, setting the stage for significant implications both within and beyond its borders, including for key partners like India.

The Russian invasion of Ukraine has continued to exert a substantial influence on the EU’s policies, solidifying the EU’s alignment with NATO and the United States while in pursuit of its strategic autonomy. The humanitarian support for Ukraine has been unwavering, manifesting through financial aid packages exceeding €100 billion over the course of the conflict since 2022 and intensified arms provisions. ^[1] The war has also reinforced the United States’ central role as the protector of European security, which has been challenged in recent times by factors such as the US shift towards China and the Indo-Pacific, and discussions in Europe about the need for strategic autonomy.

Some European countries such as Germany have also been hesitant to assume a larger proportion of the security responsibility in their region or to reduce their energy dependence on Russia, while others such as France have expressed a desire for a more autonomous geopolitical course. With the EU growing relatively less powerful than the US in their military, economic, as well as technological capacity over the last decade, coupled with the European lack of strategic coherence and collective political will on crucial strategic questions, the centrality of Washington as a leadership provider as well as the security underwriter of Europe has come to the forefront, which is bound to be challenged with the upcoming second Presidential term of Donal Trump in the US.

With respect to the Gaza conflict, despite an interim ruling by the International Court of Justice in January 2024 that suggested the Israeli army might be committing genocide, some EU countries have continued supplying arms to Israel. According to SIPRI, Germany has been the largest European supplier of weapons to Israel, accounting for 30 percent of Israel’s arms imports between 2019 and 2023. In the past year, German arms exports to Israel have surged tenfold, rising from 32.3 million euros ($35 million) to 326.5 million euros ($354 million), with most export licenses being issued in the aftermath of the start of the war. ^[2] Europe considers itself to be more at risk than any other actor, while being “caught between two wars,” as a result of the ongoing two-year conflict in Ukraine.

Economically, 2024 was marked by a mixed recovery. The EU managed to stave off severe recession risks with projected GDP growth rates of around 1.1% across Member States. ^[3] This marginal growth was supported by steady investments in the green transition and renewable energy initiatives, particularly solar and wind projects in southern Europe. Inflation levels, although declining from their peak in 2023, averaged 4-5%, prompting the European Central Bank (ECB) to maintain cautious interest rate policies to prevent economic overheating while avoiding stifling growth. ^[4]

Political dynamics were equally compelling. Elections in key member states such as Spain and Poland resulted in a shift towards more centrist coalitions, countering the far-right momentum seen in 2023. Italy continued to balance domestic reforms with maintaining EU alignment. However, with the collapse of the ‘traffic-light’ coalition government in Germany and a similar ousting of the French Prime Minister following a no-confidence vote, showcased political fragmentation over the weak economy and coalition instability, along with a shift towards political polarisation in the two biggest Member States of the EU. In addition, the UK faced continued political instability following post-Brexit challenges and sluggish economic growth rates. Hungary, on the other side of the spectrum in EU, remained an outlier, opposing sanctions on Russia and continuing energy dependence on Moscow.

Europe continued to grapple with the urgent and complex challenge posed by climate change, focussing on the ambitious European Green Deal, aiming to make Europe the first climate-neutral continent by 2050. In this context, the EU advanced the phased implementation of the Carbon Border Adjustment Mechanism (CBAM), a carbon tax, to prevent carbon leakage and encourage industries outside of the Union to adopt cleaner technologies. Europe was a major player at COP29, advocating for stronger commitments from major global emitters and supported initiatives at enhancing climate resilience.

In 2024, the EU intensified its strategic engagement in the Indo-Pacific to promote stability, prosperity, and the rules-based international order. This was done through strengthening of partnerships, leveraging the Global Gateway Initiative to counter China’s BRI, enhancing military presence and collaborative exercises, and balancing power dynamics.

In terms of India-EU relations, 2024 saw accelerated talks on the long-awaited India-EU Free Trade Agreement, with the recent round of negotiations in September 2024. European defence companies also explored partnerships with Indian counterparts under the Make in India initiative. The push for defence indigenization found a receptive partner in European nations like France, which sought to deepen their roles in India’s defence manufacturing landscape.

Strategic Implications for India: Opportunities and Challenges

Europe’s alignment with NATO and the US on the Ukraine conflict reinforced transatlantic unity. For India, this meant navigating its strategic autonomy while maintaining balanced relations with both the EU and Russia. The differing European and US positions on the Gaza conflict impacted India's diplomacy, highlighting the complex terrain of maintaining bilateral relations with both the EU and Israel while considering humanitarian aspects. Europe's calls for peace and support for a two-state solution resonated with India’s broader foreign policy principles.

The EU's reduced dependency on Russian energy sources spurred diversification efforts, creating potential for India to engage in energy trade and cooperative projects with European countries looking for stable partners. The EU and India are the world’s third and fifth largest economies respectively. While the EU is India’s largest trade partner, India is EU’s tenth largest trade partner, with their bilateral trade in goods valued at €113.175 billion, which included €64.860 billion in exports and €47.6 billion in imports (2023). ^[5] In this context, the India-EU FTA emerges as a pivotal aspect of bilateral relations. Negotiations advanced significantly, with both sides making concessions on market access and intellectual property rights, aiming to finalize the FTA by early 2025.

The resumption and acceleration of FTA negotiations indicated potential economic benefits for India, including enhanced access to European markets and trade diversification. The agreement would also provide a boost to Prime Minister Narendra Modi’s initiative to promote Atmanirbharta (self-reliance) in defence and strengthen India’s position as a regional leader and a global economic power. With a new generation of free trade agreements, India needs to secure and diversify supply sources, open up new export markets, as well as attract new capital and technology. An important political motive for India remains to reduce its economic and technological dependence on China

The FTA discussions included talks on tariff reductions and alignment of standards, promising better economic integration. However, the EU's CBAM policy, intended to reduce carbon leakage, posed challenges and opportunities for Indian exporters. Compliance with EU environmental standards would necessitate greener practices in Indian industries, but could also enhance competitiveness for sustainable products in European markets.

India's strategic interests were bolstered by the EU’s proactive stance in the Indo-Pacific, aligning with India’s vision for a free, open, and inclusive region. EU’s engagement in the Indo-Pacific aimed at countering China's assertiveness, which further opened avenues for deeper India-EU security and military cooperation. Collaborative military exercises and enhanced intelligence-sharing agreements underscored a growing defence partnership between India and the EU. The EU’s focus on security measures, including its Common Security and Defence Policy (CSDP), presented opportunities for India to engage in joint training programs and military technology exchanges.

In the sector of energy cooperation, the EU’s emphasis on renewable energy complemented India’s ambitious target to achieve 500 GW of renewable energy capacity by 2030. European investments in Indian solar and green hydrogen projects exceeded €2 billion in 2024, enhancing India’s transition to cleaner energy sources. ^[6] However, at the recent COP29 Summit in Baku, India opposed EU’s plan of imposing unilateral trade barriers in the form of CBAM on carbon-intensive goods. This results in shifting of the financial burden of mitigation activities to developing nations, which has been openly opposed by India.

Outlook for 2025

Looking forward to 2025, geopolitically, the EU will continue to navigate the delicate balance between maintaining transatlantic ties in the second term of Trump, and asserting strategic autonomy at the same time. Building a more balanced transatlantic alliance would require Europe to develop their independent capacity to support Ukraine in the war through military, economic, security as well as energy security assistance.

As a normative power founded on the principles of democracy, rule of law, and human rights, the EU has an opportunity to strengthen its credibility and legitimacy by applying these values in addressing the situation in Gaza. With the Union's commitment to greater engagement in the region, fostering partnerships with local actors to facilitate a peace conference is essential for building a fully sovereign Palestinian state that can restore both dignity and security in the region.

Economically, the EU’s focus on sustainability is expected to shape its policies, influencing global supply chains. This will present both challenges and opportunities for Indian industries aiming to align with EU standards. The extension of the EU’s Digital Services Act and related regulations will also affect Indian IT firms, emphasizing the need for compliance with new data and privacy norms. Facilitate Indian industry’s adaptation to the EU’s stringent environmental regulations through public-private partnerships and incentives for green technology investments an strengthen economic adaptability.

In 2025, the EU is poised to deepen its engagement with key global partners, including India. The anticipated conclusion of the India-EU FTA is expected to unlock substantial trade potential, facilitating easier access to European markets for Indian goods and services while opening up Indian sectors to European investments and expertise. A focus on clean energy could strengthen the Green Partnerships between India and several European countries.

Policy Recommendations

For Europe

It is imperative for the EU to pursue greater military capabilities of their Member States in order to act autonomously within NATO, with the EU becoming the enabler of European defence and the region’s primary security actor. Along with increase in military expenditure, Europe must have an inventive and competitive defence sector possessing knowledge and skills in future strategic technologies at par with other security actors in order to create a self-governing Europe. Europe should also focus on expanding their joint military exercises and enhancing defence technology transfers with an equal focus on establishing a framework for cooperation on cybersecurity to address shared security concerns

In order to step up their security autonomy, the security agreements within the Europe such as with France, Germany, and the UK need to be strengthened, along with joint financing of the region’s defence bloc. The agreements within Europe could include developing missile defence systems, aircraft maintenance, air-to-air refuelling, airlift capabilities, and joint-cyber capabilities. Suggestions also include the creation of an allied multilateral lending institution, in the form of a NATO bank. This would not only facilitate saving the NATO members millions on purchase of essential equipment, but also offer loans to the members with lower interest rates and longer time frames for repayment.

For India

In the context of an uncertain geopolitical environment, it is important for the European nations to develop strategic partnerships with India by actively engaging in defence cooperation, technology transfers, and joint military exercises. Targeting alliances with countries such as France and Germany and further deepening them will augment India’s military capabilities and technological edge.

Given Europe’s emphasis on renewable energy, India should also seek collaborative initiatives in clean energy projects. This includes increasing investment in solar and wind energy, hydrogen production, and sustainable practices, aligning with European standards while promoting energy security. In order to mitigate the challenges posed by the EU's Carbon Border Adjustment Mechanism (CBAM), India should invest in green technologies and sustainable practices. This can also be supported by forming public-private partnerships to enhance the competitiveness of Indian industries in European markets.

It is important to ensure that despite several divergences and setbacks, the negotiations for the India-EU FTA can eventually conclude smoothly, with attention to minimizing compliance barriers for Indian exporters and securing favourable terms for India and the EU. The FTA between UK-India should also be relaunched and expedited in 2025, while at the same time strengthening bilateral trade relations and defence and technology cooperation with the European capitals. The focus should be on reducing compliance hindrances for Indian exporters while ensuring favourable terms for Indian industries, particularly in sectors that align with the EU’s sustainability goals.

India should also advocate for multilateral approaches to global challenges alongside the EU, particularly on issues of climate change, human rights, and international security, reinforcing its position as a responsible global player.

Conclusion

On 1 January 2025, Poland has assumed presidency of the Council of the EU. With the declining efficiency of the Franco-German engine to push the Union forward, Poland is emerging as a new power broker in the EU. Being EU’s fifth largest economy, Poland is on the path to become one of Europe’s leading military powers, exemplifying Polish ambitions for a leadership role in the bloc. This presidency can act as an added opportunity for Poland to fortify its role as a leader, given the eastward shift in Europe’s centre of power.

A paradigm shift is necessary in terms of the waning international presence of the EU. It is the need of the hour for Europe to renew itself for the next generations and truly reclaim its status as a global power. This should take place primarily through strengthening internal unity and cohesion, enhancing the strategic security capabilities, reinvigorating the European economy, deepening partnerships with other global players, and building resilience amidst the evolving geopolitical realities.

Endnotes

^[1] Council of the European Union, ‘EU Solidarity with Ukraine’, https://www.consilium.europa.eu/en/policies/eu-solidarity-ukraine/#
^[2] Pieter D. Wezeman, Katarina Djokic, Dr Mathew George, Zain Hussain and Siemon T. Wezeman, ‘Trends in International Arms Transfers, 2023’, Stockholm International Peace Research Institute, March 2024. https://www.sipri.org/publications/2024/sipri-fact-sheets/trends-international-arms-transfers-2023
^[3] Eurostat, ‘GDP Up by 0.3% in Both the Euro Area and the EU’, 30 April, 2024. https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-30042024-bp
^[4] International Monetary Fund, ‘World Economic Outlook- Steady but Slow: Resilience Amid Divergence’, April 2024. https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024
^[5] European Parliament, ‘EU-India Free Trade Agreement’, January 2024. https://www.europarl.europa.eu/RegData/etudes/BRIE/2024/757588/EPRS_BRI(2024)757588_EN.pdf
^[6] Press Information Bureau, ‘ISA Releases World Solar Report Series’, Ministry of New and Renewable Energy, Government of India, November 5, 2024. https://pib.gov.in/PressReleasePage.aspx?PRID=2070923

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