The contemporary challenges facing Ukraine call for not only urgent measures in the defense sector but also long-term strategic decisions regarding the structure of public debt. Financial security is becoming one of the main pillars of a nation’s stability, especially during a full-scale war. In this context, the experience of European Union countries can serve as a kind of “road sign” in developing an effective debt architecture—one that promotes economic growth while also ensuring the long-term stability of public finances.
- The Importance of Debt Architecture in the Context of Security
Excessive public debt or an unstable repayment structure can trigger financial crises. Historical experience shows that economic crises often have a “domino effect,” spilling over into other sectors, including defense and social services. In the case of Ukraine, which is at war, financial vulnerability can undermine its ability to maintain an effective defense and meet basic needs of the population.
This is why “debt architecture”—the mechanisms, institutions, and legal norms governing the process of borrowing and managing public debt—takes on a strategic dimension. Within the EU, a range of approaches have developed that have proven effective in past crises and can be valuable for Ukraine.
- The European Context: From the Maastricht Criteria to Stabilization Mechanisms
2.1. The Maastricht Criteria and the Stability and Growth Pact
One of the EU’s fundamental documents is the Maastricht Treaty (1992), which establishes the so-called “Maastricht Criteria.” Under these criteria, a member state’s public debt should not exceed 60% of its GDP, and its annual budget deficit should be no more than 3% of GDP. Although these limits have not always been adhered to—and have been relaxed during crisis periods—the fact of having such benchmarks provides discipline in fiscal policy.
The Stability and Growth Pact (SGP) complements the Maastricht Criteria by setting a framework for the economic and budgetary policies of EU member states. Violations can lead to fines or the imposition of additional austerity measures. For Ukraine, which seeks closer European integration, this experience may be instructive in establishing clear limits for budgetary indicators and creating tools for their oversight.
2.2. The European Stability Mechanism (ESM)
After the 2008 global financial crisis and especially during the “sovereign debt crisis” (2010–2013) in the Eurozone, the European Stability Mechanism (ESM) was created. It provides financial assistance to member states in dire circumstances, offering loans under more favorable conditions and the possibility of purchasing bonds of troubled countries on the secondary market.
Establishing similar stabilization funds makes it possible to minimize systemic risks and ensure that short-term difficulties do not escalate into a full-blown crisis. For Ukraine, this is an example of how a mechanism for collective insurance against debt risks can be organized within international financial institutions and alliances.
2.3. Multinational and National Solutions
The EU features both supranational initiatives (directives, regulations, financial instruments) and individual strategies by member states. For example, Germany long adhered to a “black zero” policy (a balanced budget), whereas Italy and Greece traditionally carry higher public debt levels and periodically face pressure from creditors. Whether a particular model succeeds or fails depends on macroeconomic conditions, the structure of the economy, and the political will to implement reforms.
- Key elements of an effective debt architecture
3.1. Transparency and institutional capacity
A primary condition for effective debt management in the EU is a high degree of transparency in public finances. Regular publication of data on debt volumes and structure, creditworthiness ratings, and independent audits all help prevent unexpected “failures.” Additionally, countries with a well-developed democratic culture rely on strong, independent oversight bodies – such as audit offices and fiscal councils – to monitor compliance with budgetary rules.
For Ukraine, it makes sense to continue strengthening the independence of such oversight structures (including the Accounting Chamber and fiscal institutions) and to ensure maximum openness in reporting expenditures, especially those related to the military. This will not only foster trust among international creditors and donors but also ensure domestic legitimacy.
3.2. Diversification of Debt Instruments
EU countries aim to avoid excessive dependence on certain types of securities or markets. This means issuing both short-term and long-term bonds, seeking both international and domestic funding, and making use of fixed and floating interest rates, among other strategies. Such diversification reduces the risk of default if market conditions deteriorate.
Ukraine is already taking steps in this direction: issuing war bonds for the public, borrowing from international financial institutions, and cooperating with foreign governments. Moving forward, the country should expand this “menu” of financial instruments, avoiding excessive issuance of the national currency, and base its approach on long-term planning.
3.3. Flexible Risk Management Systems
Early-warning systems and scenario analyses allow for timely responses to shifts in global markets and changes in the geopolitical environment. In the EU, it is common practice to carry out stress tests on the banking sector, regularly review fiscal plans, and implement automatic stabilizers (tax or social programs).
In Ukraine, both external and internal risks are pressing: widespread infrastructure destruction due to the war, export restrictions, insufficient foreign currency inflows, and possible intermittent drops in investor confidence. The development of a comprehensive risk management system that includes monitoring of the military-political situation will form a fundamental part of the country’s debt architecture for the foreseeable future.
- The Military Dimension and Post-War Reconstruction
The full-scale war presents a unique context for Ukraine. Elevated defense spending and humanitarian aid significantly increase the budget deficit, heightening the need for financing and therefore adding to the debt burden. At the same time, assistance from international donors (the EU, the U.S., G7, the IMF, etc.) can offset part of these costs.
After active hostilities end, Ukraine will urgently need to rebuild its destroyed infrastructure. Here, the EU’s experience in creating stabilization and investment funds—akin to the Marshall Plan historically or the post-COVID-19 Recovery and Resilience Facility—can provide an organizational and financial blueprint for reconstruction. With sound management and strict oversight to ensure the proper use of funds, it is possible to combine large-scale external borrowing with long-term economic growth programs.
- Recommendations and Conclusions
- Implement Clear Fiscal Rules. Ukraine can adopt “deficit” and “debt” limits similar to the Maastricht Criteria, adapted to wartime conditions. Clear, codified limits help the government avoid populism and maintain investor confidence.
- Strengthen Institutional Oversight. It is essential to expand the powers of fiscal councils and the Accounting Chamber and enhance anti-corruption mechanisms. Preventing misuse of funds allocated for military or reconstruction efforts is particularly critical.
- Diversify Funding Channels. Under wartime conditions, developing domestic instruments (war bonds for the public and businesses) is a priority, alongside international credit lines and grant programs.
- Adopt a Long-Term Vision for Post-War Recovery. Funds raised now should be invested in a way that creates added value and strengthens Ukraine’s future economic resilience (priorities include infrastructure, energy, technology, and human capital).
- Integrate into the European Financial Space. Accelerating reforms to align with EU standards opens up a broader range of financial resources and guarantees. Compliance with the principles of the Stability and Growth Pact will make Ukraine a more predictable borrower.
Overall, building an effective debt architecture in Ukraine is impossible without accounting for wartime realities and the prospects for post-war reconstruction. European experience demonstrates that continuously improving the legal framework, maintaining independent institutional oversight, ensuring transparency, and diversifying funding sources are key to macroeconomic stability- even during global upheavals. For Ukraine, combining a systematic approach, clear rules, and international cooperation will simultaneously strengthen its defense and provide a foundation for sustainable economic growth.
Despite the many challenges posed by the war, it is precisely now that Ukraine has the opportunity to lay the groundwork for a renewed financial system that is more flexible, transparent, and adaptable to future challenges. Creating an effective debt architecture is a cornerstone of this strategy, and the EU’s experience can serve as a valuable source of ideas and ready-made solutions- ones that should be applied creatively, taking into account Ukraine’s specific circumstances.
The publication was prepared by Hanna Filatova, PhD, Assistant Professor of the Department of Accounting and Taxation. The information is a part of the project “EU experience in public debt management: conclusions for Ukraine in the war and post-war period” (101127602-EUEPDM-ERASMUS-JMO-2023-HEI-TCH-RSCH), which is implemented with the support of the Jean Monnet Erasmus+ program.
Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Education and Culture Executive Agency (EACEA). Neither the European Union nor EACEA can be held responsible for them.