Every week brings a new slew of articles predicting that Russia's deteriorating economy will force Vladimir Putin to the negotiating table as the economy slips into recession.

The banking sector is showing its first systemic cracks and the Kremlin's chief think tank is now talking about a "banking crisis." Growth has slumped from nearly 5% in 2024 to barely 1%, and GDP actually contracted in the first two months of this year. The inflation rate remains stubbornly elevated and despite recent cuts, the overnight prime interest rate is a crushing 14.5%. Economic pain is going to translate into political pressure on Putin and force him to make a peace deal in Ukraine so the thinking goes.

The argument is not wrong, but the trouble is that it also applies to most of the rest of Europe. Cracks are appearing in the EU and the economic pressure on western capitals to end the war in Ukraine is becoming just as acute. And Ukraine itself is fighting a war of survival on a balance sheet that makes Russia look conservative by comparison.

The table below sets out the key fiscal metrics for Russia, Ukraine, the major European economies and the United States. The numbers are illuminating — and uncomfortable.

Fiscal Scorecard 2025 — Russia, Ukraine, Europe and the US
Country	Debt/GDP (%)	Budget Deficit/GDP (%)	Debt Service as % of Budget	Inflation (%)	Borrowing Cost (% government spending)
Russia	18–20	2.6–3.2	9%	5.6	15%+ (OFZ bonds)
Ukraine	101–102	18.8 (excl. grants)	30% revenues	8–12	14–15%
France	115.6	5.1	8–9%	1.8	3.0%
Italy	137.1	3.4	10%	1.7	3.5%
Belgium	107.9	5.2	7%	3.2	3.0%
Romania	55	7.9	8%	5.5	6.5%
Hungary	75	4.5	7%	4.7	6.0%
Bulgaria	29.9	3.5	4%	3	4.5%
UK	100	5.4	10%	2.8	4.5%
US	100	5.5–6.0	15–16%	3	4.3%
Greece	146.1	surplus +1.7	10%	3.1	3.2%
Sources: Eurostat April 2026; Ukraine Ministry of Finance/UIF; Russian Finance Ministry/BOFIT; US CBO/Treasury. Figures rounded and in some cases estimated from multiple sources. Debt service percentages are approximations based on available budget data.

Russia: low debt, high cost

Russia's headline debt numbers are, on the face of it, surprisingly orthodox. Government debt stood at 18.3% of GDP in 2025 — one of the lowest ratios of any significant economy in the world. The budget deficit came in at 2.6% of GDP in 2025, having been revised upward from the original plan of 0.5%.

But the headline ratios conceal a structural problem that is rapidly worsening. Russia cannot borrow internationally — sanctions have closed that window — and must therefore fund all of its deficits domestically. That is proving to be very expensive. Yields on ten-year OFZ state bonds currently exceed 15%.

Despite having a debt pile that is tiny compared to its European peers, Russia's cost of servicing that debt is among the highest in the world. According to the 2026 budget law, spending on public debt servicing will reach RUB3.9 trillion rubles — equivalent to 8.9% of total expenditure. For the first time, this matches spending on national security and law enforcement.

Russia's Centre for Macroeconomic Analysis and Short-Term Forecasting calculates that Russia already spent 10.2% of revenues on servicing public debt in 2025, and this may reach 9.7% in 2026. Only the United States has a higher share, at 11.7% in 2025 and 12.5% in 2026.

At the end of 2025, servicing long-term obligations in EU countries costs on average 3.2% per year — meaning Russia, despite its low debt-to-GDP ratio, faces debt servicing costs that are comparable to or higher than those of heavily indebted European nations, simply because it is paying five times the interest rate. The gap between Russia's effective borrowing cost and Europe's is the hidden fiscal equaliser that makes Russia's position considerably less comfortable than the low debt-to-GDP ratio suggests.

And the trajectory is deteriorating. War has drained the liquid assets of the National Wealth Fund from the equivalent of 6.5% of GDP before the 2022 invasion to just 1.8% of GDP at the end of 2025.

The Ministry of Finance (MinFin) is constantly casting about for fresh sources of funding. At the start of this year it added 2pp to the VAT rate to close some of the hole. It has reduced the drawdowns form the NWF to leave some power dry and not exhaust its rainy day fund completely. But it has resisted too many bond issues and sought new revenues by increasing the efficiency of the tax system and cutting as much fat from the system as it can.

And the government has lent on the private sector banks, forcing them to fund state-owned companies as a way of pumping money into the military industrial sector. Craig Kennedy at Harvard's Davis Center estimates that Russia has forced between $210bn and $250bn in compulsory defence loans into its banking system since 2022, and that war funding slumped by 16% in 2025 as a result of the resulting credit stress. Some have called this debt a ticking time bomb, but other analysts say while this is not good practice, the problems are still far away from being acute, given the high quality work of the regulator that is watching closely.

Ukraine: the balance sheet of a country at war

If Russia's fiscal situation is uncomfortable, Ukraine's is in a different league. Ukraine's public debt as of January 1, 2026, exceeded $213bn — crossing the 100% of GDP threshold for the first time, having stood at just 50% of GDP in 2021. The IMF projects it will reach 122.6% of GDP by the end of 2026 and MinFin has been forced to negotiate debt suspension with creditors several times or face defaults.

The 2025 consolidated budget deficit came in at 18.8% of GDP, excluding grants — a figure that dwarfs every other economy in this comparison. Defence spending alone runs at approximately 25% of GDP and more than half of all government spending. Debt servicing consumed approximately 30% of consolidated budget revenues in 2025— though this figure is artificially suppressed by the creditor restructuring deals in 2022. When that debt pause expires in 2027, debt servicing costs will surge dramatically, threatening to crowd out defence and social spending simultaneously. A new debt pause deal is on the cards to buy more time.

Ukraine's inflation, which peaked at 15.9% in May 2025, has since fallen but remains elevated and is triple the Russian level of just under 6%. As a result the National Bank of Ukraine (NBU) prime interest rate is now 100bp higher than Russia’s growth-killing rate at 15.5%. Inflation is falling slowly with the IMF forecasting 7.5% in 2026, but not as fast as Russia’s decrease. At the last monetary policy rate meeting, CBR governor Elvia Nabiullina predicted that Russia’s inflation rate may return to the target rate of 4% as soon as next year and she has already put through 550bp of rate cuts in the last year.

Ukraine’s €90bn EU loan package approved last week — €45bn per year in 2026 and 2027 — is not a windfall but a means of survival. Ukraine's Ministry of Finance estimates external financing needs in 2026 at $49.3bn, with a financing gap across 2026-2027 of $60.8bn.

The EU loan is a life belt that will keep Ukraine going and is sufficient to cover all the government’s social and military costs until September 2027, according to a study by Kyiv School of Economics (KSE). But without continued Western transfers at this scale, Ukraine's state cannot function.

Europe: the glass houses problem

The European governments most vocal in their support for Ukraine and most insistent on the economic pressure being applied to Russia face also some of the worst economic results themselves. Debt, inflation and budget deficits are well beyond the limits set by the Maastricht treaty; fully eleven members were in breach of the excess of the 3% maximum excess deficit threshold according to Eurostat and if they had to reapply for their EU membership they would not get in.

And it’s all the big countries that have broken the limit. The five countries that are below the limit are all peripheral or small economies that went through brutal austerity in the 2010s and are now reaping the fiscal rewards, including Greece, Ireland, Portugal and Denmark.

The two worst budget deficit offenders are Romania (7.9% of GDP) and Poland (7.3%) – well over double the maximum allowed. They are followed by Belgium (5.2%), France (5.1%) and Hungary (4.7%).

The UK is not an EU member but is in the same boat with a 5.4% deficit – worse than that of France. The only exception is Germany where thanks to very strict constitutional restrictions on government borrowing, its budget is close to balanced. However, there is a fudge going on here as the new Merz government immediately passed a €500bn infrastructure and defence fund that is financed off-balance sheet specifically to avoid breaching the constitutional debt brake restrictions.

On debt, the picture is starker still. France's debt-to-GDP ratio reached 115.6% at the end of 2025, Italy's 137.1%, Belgium's 107.9% and Greece's 146.1%. The UK is also approaching 100%. The largest annual increases in debt ratios were recorded in Finland, Bulgaria, Poland, Romania, Belgium and France— a list that includes some of Ukraine's most vocal backers.

The economic pain is starting to crack the EU’s resolve to “stand with Ukraine for as long as it takes.” Europe is starting to realise that since the US cut off all financial aid for Ukraine since Trump took office last year it can’t afford to carry the burden alone. Last year, Europe failed to offset the end of US military aid and weapon supplies to Ukraine fell for the first time since the war began year-on-year.

Wolfgang Münchau, director of Eurointelligence and former editor-in-chief of the Financial Times Deutschland, put it with characteristic directness: "Back in December, Belgium was not ready to incur legal risks for Ukraine [and blocked the Reparation Loan]. France and Italy were not ready to provide robust guarantees for Belgium. Hungary, the Czech Republic and Slovakia did not take part in the [€90bn EU] loan. These are the revealed preferences of European politicians, as opposed to their stated preferences in which they pledge unending solidarity with Ukraine."

The fiscal arithmetic matters directly for the war. Countries running large deficits and accumulating debt at pace have limited political bandwidth for the additional borrowing that sustained military and financial support for Ukraine requires. The cost of the war is now running at an estimated $100bn a year in Europe where the governments are being forced to cut into their own spending to raise the cash for Kyiv. Finland just announced a new multibillion euro loan for Kyiv, but at the same time announced cuts to domestic social spending to fund it. The upshot has been growing popular Ukraine fatigue that is driving the rise of right-wing and popularist parties across the Continent who are campaigning on a “enough is enough” platform.

The EU's decision to jointly borrow for the €90bn Ukraine loan at the level of the EU budget, not bilateral loans at the level of national budgets, was a significant institutional step precisely because it acknowledged that many individual member states could not absorb that burden unilaterally. This is only the second time the EU has organised collective debt; the last time was a collective bond “NextGenerationEU” €806bn bond for post-COVID recovery relief that has just been exhausted.

The United States: the elephant in the room

The most extraordinary fiscal position among the major economies belongs to the country that initiated the Hormuz blockade and is simultaneously running the world's reserve currency.

US net interest payments on the national debt reached $970bn in fiscal year 2025 — the third-largest line item in the federal budget, behind only Social Security and Medicare.

In fiscal year 2026, interest costs are projected to cross $1 trillion for the first time, representing 3.3% of GDP — eclipsing the previous post-war record set in 1991.

“Many highly indebted advanced economies face a grim fiscal outlook. Under current policies, the public debt ratios of countries including Belgium, France, the United Kingdom, and the United States are set to deteriorate over the next two decades. They still have room to borrow, but there are limits,” the International Monetary Fund (IMF) said in a recent commentary. "So far, financial markets have been forgiving. But recent tremors suggest that they may become more sensitive to negative news about the fiscal or economic outlook. They may demand higher interest rates even from countries with highly liquid government bond markets, making the job of reducing debt that much harder."

As a share of federal revenues, interest payments have risen to 18.6% — and as a share of total spending, interest costs will reach 15.7% by 2029, exceeding the previous high of 15.4% set in 1996. The Iran war, by pushing up Treasury yields, has made this picture worse. CBO projects debt held by the public will reach 100% of GDP in 2026, rising to 120% by 2035 under current policy.

The US debt is not unsustainable yet. But it is getting there. As IntelliNews reported, the US no longer has the “world’s safest bonds” after they lost their pristine AAA rating, and several of the other leading EU countries are also starting to get downgrades.

Today, only a handful of countries still hold AAA ratings from all three major agencies — and among them are several familiar names from the analysis above: Norway, Switzerland, Denmark, Luxembourg, Singapore, and Germany (though it is already flagged as at risk of a downgrade).

"Excessive debt slows economic growth, reduces income levels, raises interest rates, and constrains funding for core government functions, like national defence," noted Romina Boccia of the Cato Institute in response to proposals for further defence spending increases. "Financing a larger military by borrowing yet more, when interest costs on the existing debt already exceed what the nation spends on defence, becomes fiscally untenable."

The uncomfortable truth

The narrative that Russia's economy is cracking under the pressure of war and sanctions is true, as far as it goes. The banking sector stress is real. The National Wealth Fund has been largely exhausted. Growth has collapsed from near-boom levels. And the cost of borrowing is punishing.

But the uncomfortable truth is that several of the European countries calling for tighter sanctions and more pressure are closer to an economic crisis than Russia is. Countries like Romania and France are going to take a few years to pay down their deficits and then only if they introduce painful austerity budgets. On the other hand Nabiullina’s unorthodox experiment to slow growth to reduce inflation seems to be working as inflation fell faster than expected last year and she plans to make more growth-boosting cuts this year. Things are not well with the Russian economy, but it could return to some sort of normalcy as soon as next year. Certainly this year Russia’s economy will grow faster than that of France.

Ukraine's economy remains on life support and that is not going to change. The debt-to-GDP ratio now exceeds 100% and is rising toward 120%. Its budget deficit, at nearly 20% of GDP, is in a category of its own among sovereign states not at war. France, Belgium and Romania are running deficits that break EU rules. Italy's debt-to-GDP ratio is nearly eight times Russia's. The United States is spending more servicing its national debt than it spends on its military. All of this means that the implicit framing of this war — responsible, fiscally sound democracies versus a bankrupt authoritarian regime — requires some revision and that is what is behind the current rising disunity in the EU.

Data from Eurostat, Russian Finance Ministry, Ukraine Ministry of Finance, Bank of Finland (BOFIT), US Congressional Budget Office, IMF and World Bank.