author: Tyler Durden
Written by Ian Proud,
The ugly fact is that ending the war in Ukraine can have as devastating economical and political consequences for Europe as its further action...
Ukraine is already facing a backing deficit of 63 billion US dollars in 2026 and I would be amazed if this amount had not increased if the war continued. Ukraine's massive fiscal expenditure is driven by 2 factors.
The tremendous cost of maintaining a permanent army of nearly a million people;
The tremendous cost of importing weapons from the West to wage war.
Gun purchases are not a origin of productive investment due to the fact that they are virtually burned in the heat of battle.
The same applies, of course, to Russia.
Both countries saw a decline in economical growth in 2025, with Ukraine reaching 2.1% and 1.5%.
Western commentators would point out this as evidence that Ukraine's economy is doing better.
But it's the opposite.
Russia's economy is nominally about 12 times larger than Ukrainian and somewhat more than 10 times larger if you look at GDP at purchasing power parity.
You can see that in defence spending figures.
Russia spent a evidence $143 billion in defence in 2025, while on Ukraine about 60 billion, or about 2.3 times more. However, Russian defence spending accounted for only 6.3% of GDP, while for Ukraine 31.7%. So mass defence spending is simply a much little crucial issue for Russia in terms of its economical situation.
Defence spending represents a much smaller share of full economical activity than Ukraine. Russia can besides finance its defence needs from its own resources, while Ukraine is entirely dependent on Western donors' money to keep the war.
Despite the tremendous cost of the war, Russia had a fiscal deficit of only 1.7% of GDP in 2025.
This is inactive well below EU fiscal regulation of 3% of GDP, with any countries, specified as France and Poland, having deficits at or over twice as high.
The fiscal deficit of Ukraine was around 20% of GDP.
This gap had to be filled by abroad financing, as the company has a debt of 107% of GDP and is cut off from abroad lending.
The EU has so entered into action by offering a debt of EUR 90 billion, of which 2 thirds are for defence.
Russia, on the another hand, has a debt of about 15% of GDP and does not truly gotta take large loans to keep the war effort on the surface. By the way, 15% of GDP is importantly lower than in the US or any European country, many of which, like Ukraine, have debt levels exceeding 100% of GDP.
Ukraine defends money that Europe does not have.
Despite the shock of sanctions, Russia does not gotta pull out the bank or importantly increase its loans.
This besides means that erstwhile the war is yet over, Russia will be able to carry out an economical peace transition in a little painless way.
Russia will not be under force to impose massive cuts in defence spending to live within its capacity, and alternatively it will be able to do so gradually.
On the another hand, Ukraine faces a immense financial edge after the end of the war.
According to the OECD, Ukrainian economical growth is expected to further decline to 1.7% in 2027 if the war continues.
This assumes further large capital injections from abroad countries. In 2025, Ukrainian defence expenditure accounted for 31.1% of Ukraine's GDP and 2 thirds of the state's budget expenditure. no of these expenses are intended to improve Ukraine's weak economy.
With all the support it receives, Ukraine's GDP in 2025 was just under $210 billion according to the IMF.
It should be remembered that Ukraine received $52.4 billion of external financing in 2025, or about a 4th of its GDP at the end of the year.
Pick up abroad backing and abruptly Ukraine's economy is falling by more than 20%.
Or else, if you take the war, Ukraine's economy will shrink by over 20%.
Russia is simply not facing the same problem.
Instead, ending the war can aid Russia master inflation – possibly the biggest economical challenge – erstwhile economical activity returns to average rhythm.
But the question remains, why has Ukraine developed so small since it received so much abroad funding?
One of the main reasons is that Ukraine recorded a trade deficit of $30 billion in the same period as the National Bank of Ukraine is simply a record.
Within a year, 52 billion dollars of abroad money went to Ukraine, and 30 billion immediately returned.
Because the immense trade deficit of Ukraine is driven by 2 things.
Firstly, a immense increase in arms imports from western suppliers, which has doubled since 2022, especially since it is no longer provided free of charge.
Secondly, Ukraine increased imports of natural resources, in peculiar the massive increase in gas imports, as home production was heavy affected by the war. Coal is another area due to the fact that Russia has taken over crucial coal mines in Donbasa.
Not all this trade deficit will be recoverable even after the end of the war, even if Ukraine could reduce the overall trade deficit.
By comparison, the surplus trade in goods in Russia already in October 2025 exceeded $100 billion, although the overall trade image is narrower and amounts to about $36 billion, due to a crucial deficit in trade in services, including from a large number of Russians who have moved abroad since the start of the war.
The end of the war, if any, may let Russian trade surpluses to grow further. The future relaxation of imports of natural resources into Europe may mean that Russia will benefit from increased trade with Asia and renewed trade with Europe.
In any event, the consistent surplus that Russia has achieved helps support economical growth and abroad exchange reserves, which in 2025 increased by over $135 billion to as much as 734 billion.
And just to be clear, Russia has almost entirely invested its gold reserves, which presently exceed $310 billion.
One of the main reasons why Russia keeps its reserves in gold is the desire to defend against Western bureaucrats who at the beginning of the war frozen any $300 billion reserves.
This means that Russia has a surplus of $434 billion in abroad exchange reserves, which are almost entirely isolated from Western expansion. The increase in currency reserves by $10 billion in 2025 was undoubtedly due to the accumulation of reserves in non-dollar currencies, euro and pounds, suggesting an increase in trade in Chinese yuan and Indian rupees.
The end of the war may at any point lead to the thawing of immobilized Russian resources in the US, Europe and Japan.
The position of Ukrainian reserves is besides comparatively strong – in early 2026 it amounted to $57.3 billion, which is simply a evidence value. However, this increase is entirely due to the inflow of abroad capital to finance the war effort. The end of the war would most likely reduce Ukraine's reserves, as its persistent trade deficit was no longer offset by abroad inflows of funds, as occurred during the war.
However, this abrupt and shocking failure of abroad backing accompanying the end of the war will consequence in a dramatic simplification in Ukraine's economy.
But don't worry, Europe is determined that Ukraine has an army of 800,000 soldiers after the end of the war. However, this seems to be more about economical endurance than security.
Ukraine would not be able to finance specified a large army with its own money due to the fact that there is no money. So Europe will gotta intervene again to meet Ukraine's financial needs and pay salaries to soldiers who are no longer in combat mode.
According to a fresh survey by the Kilonian Institute, this will lead to increased debt and taxes in Europe. But this will besides lead to the failure of customers to European defence companies. due to the fact that the time of peace inevitably means a sharp decline in the amount of ammunition and military equipment burned regular in the fog of war.
Two thirds of the fresh 90-billion EU debt to Ukraine will be allocated to military support, including arms. This has sparked a dispute between Germany and France about the proposed "buy Europeans" clause, as France wants to prevent Ukrainian purchases of American equipment. possibly looking into the future, the French, as they usually do, are trying to guarantee that their companies receive a decent share of what could mean by the decreasing Ukrainian arms orders.
A bit like the French army, Europe inevitably falls into economical failure after the war has ended.
Obliged to keep an economically bankrupt Ukraine on life support.
Increase debt and taxes to support the bad abroad policy decisions it has taken since 2014.
He tried to strengthen his defence industry, but he lost business with the end of the war.
For the major European parties, this only deepens the trend that they are heading towards electoral Armageddon erstwhile they start exhibiting at the polls from 2027.
Until then, they were stuck knowing that the continuation of the war would kill their election, and that the end of the war too.
Quoting my old British soldier, my father, they're like a mythical oozlum bird that keeps going around until it disappears in its own butts.
Translated by Google Translator
source:https://www.zerohedge.com/