Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

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.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
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
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
×