Europe bulletin: UK borrowing eases, France budget deadlock deepens, geopolitical risks rise

Europe enters the new year grappling with uneven fiscal realities and rising geopolitical strain.

Britain shows tentative progress in reining in borrowing as inflation cools, while France remains mired in political gridlock that is worsening an already fragile budget outlook.

Further east, Ukraine secures critical debt relief to protect its post-war recovery, even as Russia escalates warnings over eurozone asset security, underscoring how financial policy and geopolitics are increasingly intertwined across the continent.

UK borrowing falls despite headwinds

Britain’s government borrowed £11.7 billion in November, coming in higher than the expected £10 billion, according to official figures released Friday by the Office for National Statistics.

However, this marked a welcome improvement from November 2024, when borrowing hit £13.6 billion, representing a 14% drop year-on-year.

The slowdown reflects moderating debt interest payments as inflation eases, offsetting continued pressure from welfare spending and public service costs.

Year-to-date through November, borrowing has reached £132.3 billion, the second-highest eight-month total on record outside the pandemic.

While Finance Minister Rachel Reeves continues implementing tax increases to control mounting debt, these latest figures offer a modest sign that the government’s fiscal consolidation efforts are gaining traction amid persistent economic headwinds.

France budget talks collapse again

France’s budget crisis deepened Friday as lawmakers failed to agree on a 2026 spending plan, leaving the eurozone’s second-largest economy without a finalised budget heading into the new year.

A joint committee of senators and deputies collapsed within an hour without reaching a compromise, forcing Prime Minister Sébastien Lecornu to seek a special law temporarily rolling over the 2025 budget while negotiations continue.

The stalemate reflects a fundamental divide between a cost-cutting Senate and a left-wing lower chamber demanding higher taxes and spending.

Central bank governor François Villeroy de Galhau warned the stopgap measure masks France’s deeper fiscal crisis, with the deficit currently at 5.4%, and debt approaching 117% of GDP.

Lecornu now faces yet another political challenge in a string of prime ministers unable to bridge France’s structural budget shortfalls amid parliamentary gridlock.

Ukraine defuses GDP warrant debt

Ukraine secured a landmark deal Thursday, convincing 99% of GDP warrant holders to restructure $2.6 billion of problematic debt into conventional bonds.

The exchange, exceeding the 75% threshold needed for success, converts growth-linked warrants into new Class C Eurobonds maturing in 2032 with coupon payments rising from 4% to 7.25% annually, plus cash incentives reaching 7%.

Finance Minister Serhiy Marchenko hailed the agreement as critical for eliminating a fiscal time-bomb that threatened billions in unbudgeted payments once Ukraine’s economy rebounds from wartime devastation.

The restructuring shields Ukraine’s fragile post-war recovery by converting uncertain GDP-linked obligations into predictable fixed-rate debt, freeing limited budgetary resources for reconstruction and defense.

It marks the second major debt relief in two years, following Ukraine’s September 2024 restructuring of $20.5 billion in Eurobonds, demonstrating sustained creditor confidence despite ongoing Russian aggression.

Putin warns on Eurozone reserves

Putin issued a sharp warning Friday, cautioning oil-rich nations, including Saudi Arabia and the UAE, that keeping their international reserves in the eurozone could become perilous.

The Russian leader lashed out at EU discussions about seizing frozen Russian assets to fund Ukraine aid, calling such confiscation outright “robbery” that would undermine confidence in the currency bloc.

With the EU deciding instead to lend Ukraine $105 billion over two years through EU borrowing rather than asset seizures, Putin seized the opening to sow doubt among major reserve holders.

“This is not just a blow to its image; it is an undermining of trust in the eurozone,” Putin said during his annual press conference, warning that once asset seizures begin, precedent could enable copycat moves under various pretexts.

The comments reflect Moscow’s broader anxiety over escalating Western sanctions.

The EU recently agreed to phase out all Russian fossil fuel imports by 2027 and expanded shadow fleet restrictions.

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