Solidarity with the Ukrainian people must not remain just an empty slogan. We must provide far-reaching military, humanitarian and economic support. Writing off Ukraine's foreign debt is not an abstract left-wing idea but a realistic way to help our eastern neighbour. In 1953, the world decided to cancel half of West German debt. Now we must do the same for Ukraine which is standing alone against an imperialist aggressor and rightly demands our support.

On 8th March, leftist parties from Ukraine, Poland, Lithuania, Finland, and the Czech Republic met in the Polish Parliament. We supported the appeal of our Ukrainian friends from the Social Movement (Sotsialniy Rukh) and called on the European Central Bank to cover the cost of servicing Ukraine's foreign debt. We came together and spoke with one voice. Now hear us out.

Ukrainian debt burden

Taking over Ukraine’s external debt is an effective way to provide economic and humanitarian aid. Even before the invasion, the state has been succumbing to a massive foreign debt. According to the National Bank of Ukraine, as of the end of 2020, it amounted to $125.7 billion. However, the problem for the Ukrainian economy has not been just  the amount of foreign borrowings but also their high interest rates. This is mainly a result of the terms imposed by creditors for the postponement and restructuring of the Ukrainian debt in 2015. Back then, the country was in a huge political crisis caused by the annexation of Crimea by the Russian Federation and the declarations of independence by Donetsk and Luhansk People's Republics inspired by Russia. As a consequence, Ukraine has to spend around 10-15% of GNI yearly on debt servicing.

Now, Ukraine needs to be freed from the burden of external debt more than ever. This year, debt service costs are expected to be about $6.2 billion. That is approximately 12% of the state budgetary expenditure. In the face of the Russian invasion, the state must provide military equipment and food supplies for the army and the territorial defence units. Resources are needed to protect the civilian population, provide housing for the displaced and medicine for the wounded. It is also necessary to maintain the regular activities of the state, e.g. the payment of civil servants’ salaries or pensions. The money Ukraine is spending on servicing its debt can help it here and now.

The German past sets direction

Germany has a unique experience in the context of debt relief. In 1953, West Germany was a completely different country than its successor today. High indebtedness - a legacy of the post-World War I reparations and the reconstruction following the end of World War II - was hindering economic development. As the country was viewed suspiciously by creditors, it also had troubles with access to capital. Huge investments were still needed to rebuild the state  infrastructure after the war, and foreign currency to pay back foreign-owed debts - limited.

And then - on 27th February 1953 - the London Debt Accords were signed. The governments of the United States, the United Kingdom, France, Canada and sixteen other countries came together and agreed on the cancellation of half of West Germany’s debt. In the following years, they were joined by governments of Egypt, Argentina, Belgian Congo, Cambodia, Cameroon, New Guinea, and the Federation of Rhodesia and Nyasaland, making the London Debt Accords a unique example of debt relief of such scale.

This global effort bore outstanding results. In the years following the debt relief, West Germany experienced the highest growth rate in Europe - known as “Wirtschaftwunder” or “The Miracle on the Rhine”. Part of this success should be attributed to the debt relief programme. According to economists Galofré-Vilà, Meissner, McKee and Stuckler, the London Debt Accords “created fiscal space for public investment and social spending, restored the full convertibility of the Deutsche Mark, and stabilised inflation”. As another economist Rombeck-Jashinski points out, the German economy benefited immensely from the resulting strengthening of the German borrowing capacity and capital flows at low interest rates. Although debt relief was not the only component of the West German miracle, economic development of this scale would not have been possible without it.

Ukraine's stability is our stability

Even before the invasion, Ukraine was one of the poorest countries in Europe. But a  current David versus Goliath struggle is also taking its toll. As reported by the Social Movement, the Russian military “destroys sites and enterprises of strategic and critical infrastructure, transportation arteries and the economic potential of our country”. Every day, the media shows us new images of towns shattered by the Russian bombardment. Some estimates say that if Russia continues to bomb Ukraine at the current rate, the post-war reconstruction might require over trillion dollars.

Not having to service external debt is obviously not enough to cover all costs of the ongoing war, let alone rebuild the Ukrainian economy. However, as the West German example shows, economic aid should come hand-in-hand with debt relief. The current level of debt is already a burden on the fighting state. We can expect that it will also hamper Ukrainian efforts to rebuild the country after the invasion by eating up a large proportion of economic aid and blocking access to capital needed for large-scale investments. The post-war reconstruction will require a propitious economic environment, which can only be facilitated by debt cancellation.

In times of economic and political interconnectedness, the question of Ukraine’s stability is also a question of the stability of our economies. Already in the first days of the invasion, we saw how strongly events there affect the situation in our region.  Ukraine's stability will benefit us directly. This is what creditors saw in 1953. This is what we need to see now.

Ukraine has chosen Europe. But even if it is formally recognised as a candidate for EU membership, formal accession still remains a distant prospect. For the European Union's enlargement efforts to be effective, the bare minimum is for Ukraine to have the financial tools to keep its administrative base functioning. Removing the burden of debt from Ukraine also supports its European aspirations.

Creditors to West Germany were keen to waive off half of its debt, seeing it as a guarantee of the country’s economic and political stability. The London Debt Accords are a model example of how to support the post-war reconstruction. Now we must do the same for Ukraine.

Dorota Kolarska, Magdalena Milenkovska, Razem International Office