Russia’s War on Ukraine Is Hitting Debt Costs for EU’s East

Aaron Eglitis and Jorgelina do Rosario
·2 min read
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(Bloomberg) -- Russia’s invasion of Ukraine has hit sovereign borrowing costs for the EU’s 10 eastern members, raising the cost by around half a percentage point since the war began, according to an analysis by the European Bank for Reconstruction and Development.

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“You see the impact of the war on central Europe,” Beata Javorcik, the EBRD’s chief economist, said in an interview ahead of the release of the development bank’s bi-annual report on members’ economies. “Many governments are openly talking about their fear of being attacked and that certainly is a signal that is received by the markets.”

The debt spread over Germany’s five-year bunds for EU countries in the EBRD region “opened sharply” after the conflict broke out and has remained above 100 basis points, the multilateral development bank said, referring to countries such as Poland, Hungary, Croatia and Latvia.

In the EBRD regions as a whole, the median yield on 5-year government bonds increased by three percentage points between early February 2022, when the war began, and mid-April 2024, the report said. The EBRD covers some 40 economies across three continents, from EU’s east to central Asia.

The European Union’s eastern members have been among the biggest critics of Russia’s attack on Ukraine, proposing tougher sanctions and supplying military aid to Kyiv. And while their geographic proximity to the conflict has increased borrowing costs, European Union membership has significantly boosted living standards, according to the EBRD.

For the eight eastern European nations that joined the EU in 2004, membership has been a huge success, Javorcik said. Their economies now correspond to, on average, 50% of Germany’s per capita GDP, from 26% in 2003. About half of that growth is attributed to joining the group, according to the report.

“It’s no wonder that other countries are interested in EU accession,” Javorcik said.

(Adds chart. A previous version of the story corrected to basis points from percentage points in third paragraph)

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