London Daily

Focus on the big picture.
Saturday, Jul 05, 2025

The EU is leading Ukraine into a sovereign debt crisis

The EU is leading Ukraine into a sovereign debt crisis

Brave and economically ravaged Ukraine needs a debt deal to win the coming peace — and grants rather than loans.
European leaders haven’t been shy about trumpeting their €18 billion in loans to Ukraine in 2023 as a tool for“maintain[ing] the macro-financial stability of the country.”For European Council President Charles Michel, such aid shows that Brussels is “very committed to supporting Ukraine as much as we can.”

However, as the war rages and pressure on Ukraine’s economy mounts, basic economics — and centuries of history — paint a much less optimistic portrait of the real impact of Europe’s financial support.

Sometimes in Brussels, ignorance really is bliss.

The reality is that brave, bombarded and economically ravaged Ukraine needs a debt deal to win the coming peace. And if Kyiv is to have a realistic chance of a post-war recovery, this deal should include significant debt restructuring and the transfer of tens of billions of euros in non-repayable grants.

With an inflation rate of 26 percent, interest rates of 25 percent and a one-third decline in Gross Domestic Product (GDP) in 2022, Ukraine is reaching the limits of existing, conventional economic policy.

Soon, Kyiv will have to resort to the printing press to finance daily public services. And as the Germans, the Dutch and others often like to remind Europe, this will lead to economic catastrophe.

Ukraine has already deferred payments until 2024 on up to €20 billion of its debt held by international investors. And while the approximate €6 billion that the country has saved through this action is important, it pales in comparison to its expected budgetary shortfall of approximately €40 billion in 2023 alone.

Ukraine needs a debt write-off — unfortunately, the EU just wants it to keep borrowing.

The €18 billion worth of loans from the EU will eventually have to be repaid, starting in 2033, and loading on more debt — even of the long-term, practically zero interest variety — reduces Ukraine’s potential for quick recovery from the war. It’s also a nonsensical economic approach, given that Kyiv has already suspended payment on some of its existing obligations.

Overall, the EU’s strategy is simply a recipe for a future Ukrainian sovereign debt crisis.

Remarkably, for all the bombast in Europe about a “Marshall Plan for Ukraine,”it is the United States — not the EU — that has correctly learned from its economic history.

The U.S. has already provided over $13 billion in non-repayable grants to Ukraine, with a further $14.5 billion due in 2023. And this U.S. aid is in addition to the tens of billions of dollars it is spending on military support.

As uncomfortable as it may be, Brussels — and Berlin — know all too well that it was the debt relief granted to Germany in the late 1940s, which laid the foundation for Europe’s post-war economic miracle: A return to economic growth, which eventually led to the creation of a prosperous European Economic Community in 1957.

This “inner core” of the original Marshall Plan wrote off Germany’s post-1933 debts and enabled West Germany to start off with a debt-to-GDP-ratio of under 20 percent, following the London Debt Agreement of 1953. Originally designed as a temporary arrangement, it was solidified upon German reunification in 1990.

It was understood, at the time, that a wartime economic crisis required a pragmatic and flexible political response — just as it does now.

Alas, the EU’s response to financing Ukraine has been anything but historic.

The bloc has allowed its internal splits on economic policy — which were ironically crystallized by German reunification and the creation of the euro — to undermine its strategic objectives in Ukraine. And while it continues to be haunted by the ghosts of Greece and stalked by Hungary, the European Council is unlikely to ever approve a meaningful grant-aid, debt-reduction package for Ukraine.

As a result, the country’s long-term financial sustainability remains compromised by the EU’s decision-making dissonance.

In this context, it is individual EU member countries that should be taking the lead in supplying bilateral grant aid to Ukraine. Although the European Commission is eager to place itself at the head of all EU aid efforts, this is a case of aspirational leadership rather than actual discernible effectiveness, particularly given the delays — and member country squabbling — in distributing existing support.

Direct bilateral grant aid to Ukraine should thus be exempt from the eurozone’s self-imposed budgetary constraints. And unused EU aid in member countries — ranging from the common agricultural policy to the Cohesion Fund — should be permitted to be sent as non-repayable financial support to Ukraine, should any member so wish.

Taking its history and economic scale into account, it’s Germany that should take the lead. And if Berlin can’t overcome its current phobias, it should — at the very least — facilitate other EU member countries that want to follow the U.S. approach.

There will come a time for the political and economic reforms so beloved by Brussels to be proactively linked to future financial support for Ukraine — but now is just not the time.

Both the EU and Germany need to acknowledge their own economic history or, failing that, step aside and let the U.S. and Britain save Ukraine’s economic future. Otherwise, one of the biggest tragedies of this war may well end up being Ukraine’s disillusionment with Europe.
Newsletter

Related Articles

0:00
0:00
Close
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
Poland Implements Border Checks Amid Growing Migration Tensions
Political Dispute Escalates Between Trump and Musk
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
US Senate Votes to Remove AI Regulation Moratorium from Domestic Policy Bill
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
Jury Deliberations in Diddy Trial Yield Partial Verdict in Serious Criminal Charges
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
King Charles Plans Significant Role for Prince Harry in Coronation
Two Chinese Nationals Arrested for Espionage Activities Against U.S. Navy
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
Trump Administration Considers Withdrawal of Funding for Hospitals Providing Gender Treatment to Minors
×