Europe’s mounting problems threaten Ukraine’s macro-financial stability, which is facing a macroeconomic collapse at the end of this quarter if the €90bn loan for Ukraine agreed on December 19 fiasco is not resolved.

Ukraine is running out of money fast. It recently received a $1.5bn first tranche from the International Monetary Fund (IMF) $8.1bn Extended Fund Facility (EFF) that will tide it over for a few weeks. The Nordic countries are also suggesting a €30bn bilateral loan that will over the Ukraine’s budget needs until September, but this loan has also not been agreed yet.

Now Ukraine’s budget is face new risks in European sovereign debt markets that are going to come under pressure from the inflation shock caused by the war in Iran, UBN reported on March 25, citing the Institute for Economic Development of Ukraine.

The escalation of conflict in the Middle East has contributed to a global rise in inflation, driven by supply chain disruptions and higher energy and food prices, which has increased the likelihood of a European recession to 36.9%, according to the institute.

“Amid the collapse of the European sovereign bond market, the European Central Bank must choose between sovereign defaults by member states and printing more money,” the Institute for Economic Development of Ukraine said.

Analysts expect policymakers in Frankfurt to favour further monetary expansion. Such a move could trigger a renewed surge in inflation across the eurozone, potentially exceeding the peak of 10% recorded in 2022.

Ukraine’s domestic economic indicators are already showing strain. The hryvnia has weakened sharply, reflecting declining purchasing power and broader pressures on the economy amid sustained fiscal demands and external shocks.

“The primary risk is that the EU remains Kyiv's main financial supporter,” the institute said. “Any worsening of the EU's macroeconomic situation or an increase in its debt problems could threaten Ukraine's financial stability, affecting both new aid programmes and already approved instalments.”