The costs of the Russia-Ukraine war and Ukraine’s accelerated accession to the EU for Hungary

Costs of the war in Ukraine so far

The outbreak of the Russia-Ukraine conflict has negatively affected the Hungarian economy in three main areas.

As a result of the costs associated with gas imports, the Hungarian economy incurred extra expenditure of HUF 6,386.3 billion as “war surcharge”.

As a result of geopolitical risks and inflation shocks, the yield on benchmark 5-year government bonds has risen to between 4% and 6%, up from 2% previously, making new funding more expensive by HUF 1,968.9 billion.

In response to the EU sanctions, Russia also introduced restrictions, which also affected Hungarian exports: during the three years of the war, Hungarian companies sold HUF 695.8 billion less in products on the Russian market.

In light of this, the total war losses to the Hungarian economy amount to HUF 9,000 billion, which means that Ukraine has so far cost every Hungarian household at least 2.2 million forints.

Future costs of Ukraine’s accession

Under the current rules, Ukraine’s EU accession will significantly change the assistance framework, at a cost of EUR 11-20 billion at Community level. The change in allocation would mean that Hungary would receive a total of HUF 110 billion less per year from the Cohesion Fund and the Common Agricultural Policy. The European Parliament proposes that Member States should spend an additional 0.25% of their GDP on Ukraine each year, which would result in an extra HUF 202.9 billion in Hungary’s case.

Under the current unique pension convention between Hungary and Ukraine, Ukrainian pensioners resettled in Hungary would receive pensions from the state budget under the Hungarian system. Based on the number of Ukrainian citizens aged 65 and over, a 5% resettlement rate would mean an additional pension expenditure of HUF 1,017.8 billion.

Ukraine would need an estimated USD 524 billion (nearly two and a half times Hungary’s GDP) to rebuild the country. As the Ukrainian state is not able to finance this from its own budget, the European Union plans to finance it. If Member States were to bear the burden of the expenditure based on their share of GNI, Hungary would be forced to contribute 1.4% of the total amount based on 2023 payments, which, assuming the amount would be paid over the next five years, would result in an annual expenditure of HUF 536 billion.

Under current EU rules, the direct costs of fast-tracking Ukraine’s accession would therefore amount to HUF 1,870 billion a year for Hungary, which would be the equivalent of HUF 458,000 for each Hungarian household, on top of the costs incurred so far.

However, the indirect costs may outweigh the direct costs, which may take the form of additional expenditure due to changes in the health and crime situation, reduced perceptions of security and the associated increased expenditure on law enforcement, and other factors.

Costs of the Russia-Ukraine war so far

The escalation of the Russian-Ukrainian conflict on 24 February 2022 halted the growth of the Hungarian economy, which was recovering dynamically from the coronavirus crisis. It is essential to estimate the approximate cost the war caused to the national economy in terms of funds diverted from catching up, and to assess the costs to the national economy of the conflict itself, its direct and indirect effects and the political, economic and trade policy responses to them.

Our estimate is based on three pillars:

• increase in import prices due to changes in spot prices on the Dutch TTF gas exchange,
• additional fiscal expenditure (higher costs of funds raised) due to the Hungarian and international yield environment,
• (partial) loss of the Russian export market.

Price increases for natural gas imports are measured on the difference between the TTF prices (Dutch TTF gas exchange) for 2015-2021 and the prices for the period 2022-2024. Based on the annual gas imports into Hungary and the average TTF gas prices for that year, we calculated the cost of natural gas imports for Hungary between 2022 and 2024 (HUF 8,400 billion). We also looked at how the benchmark price moved on international stock exchanges in the pre-war period (2015-2021). Assuming that, without the war, we could have purchased gas in the period 2022-2024 at the average price of the years before the outbreak of the war, it can be calculated that the Hungarian economy spent an extra HUF 6,386 billion on gas imports since the outbreak of the war, due to the increased costs.

Geopolitical risks and inflation shocks have pushed the yields on benchmark 5-year government bonds into the 4-6% range, compared with the previous 2%. Our calculation looked at the number of new issues in the period 2022-2024 and their expected cost. We also calculated how much the same amount of issuance would have cost if it could have been financed at average yields between 2015 and 2021. Thus, the cost for raising new funding over this period has increased by HUF 1968.9 billion through higher interest expenditure.

During the war period, the EU imposed a number of trade sanctions on Russia, to which Russia responded with restrictions. Based on the export statistics published by the Hungarian Central Statistical Office (KSH), we examined how much Hungary sold in Russia between 2015 and 2021, and how this changed between 2022 and 2024. Comparing the two periods, Hungarian companies sold HUF 695.8 billion less of their products in Russia in this period.

The reorganisation of the EU’s Multiannual Financial Framework and the cost of reconstruction

Ukraine’s accession to the European Union will significantly change the aid framework. Our analysis looked at payments under the Common Agricultural Policy and the Cohesion Funds. Our calculations are based on the report published by the European Parliament on 22 January 2025[1]. The authors put the total cost of Ukraine’s accession at between EUR 11-20 billion. From this study, we calculated the changes in allocation for each Member State, including Hungary, as a result of Ukraine’s accession.

It can be seen that Ukraine’s accession to the EU would mean that Hungary would receive HUF 110 billion less per year from the Cohesion Fund and the CAP. It is also worth noting that a proposal currently under consideration by the European Parliament, and supported by most political groups, is to allocate 0.25% of Member States’ GDP annually to support Ukraine[2]. This would result in an additional expenditure of HUF 202.9 billion based on Hungary’s GDP in 2024.

More than three years have passed since the escalation of the Russia-Ukraine war on 24 February 2022. In addition to the loss of human life, the material damage is also significant. According to a report published by the World Bank, the EU, the UN and the Ukrainian government in February 2025[3], the Ukrainian state would need an estimated USD 524 billion (nearly two and a half times Hungary’s GDP) to rebuild the country. This would include, among other things, restoring the energy system, rebuilding factories, roads, ports and housing, and rehabilitating agricultural land. As the Ukrainian state is not able to finance this from its budget (or other external funding), the European Union plans to finance it.

If Member States were to bear the burden of the expenditure based on their share of GNI, Hungary would be forced to contribute 1.4% of the total amount based on 2023 payments, which would be equivalent to EUR 6.7 billion. Assuming that this amount would be disbursed to Ukraine over a five-year period, the domestic economy could spend an average of HUF 536 billion a year on reconstruction in our eastern neighbour.

The transformation of financial markets in the region

Given the public statements of the current EU leaders that Ukraine could become a full Member State before 2030, it is worth examining the impact on the financial markets in the region. According to external debt statistics, the economies of Poland, the Czech Republic, Romania and Hungary (excluding the public sector) attract an average of EUR 43.7 billion of additional international financing per year[4], which represents important investments and loans for economic agents. It should be stressed that the countries of our region belong to the group of dynamically developing EU economies outside the euro area, while Ukraine is currently a non-EU economy. Consequently, the Ukrainian and Hungarian economies are classified in different categories in the portfolio of foreign capital flows to Central and Eastern Europe. However, if Ukraine’s fast-track accession to the EU gets underway, the Ukrainian economy could compete directly for foreign finance flowing into the Central European region.

Between 2021 and 2023, the average international private sector debt level of the Ukrainian economy was EUR 56-58 billion, roughly the same as when Poland joined the EU. [5]Considering that Ukraine is significantly underdeveloped compared to our region, and that the war damage offers many investment opportunities, very low labour costs and a strong economic recovery due to the EU reconstruction programme, a dynamic catch-up period is expected.

We considered two scenarios: in the baseline scenario, the Ukrainian private sector’s external fundraising may follow the pace of Poland’s post-accession, as evidenced by the fact that the Polish economy is similar to the Ukrainian economy in structure, size and population. In this case, Ukraine could absorb an average of EUR 9.1 billion of additional funding per year over the next 5-7 years. A more dynamic scenario, assuming economic benefits (and additional absorption of funds) from reconstruction and an accelerated catch-up to pre-war external indebtedness levels, assumes an average of EUR 22.3 billion. Assuming that the financial markets finance only a small part of the excess demand by shifting surplus funds to the region, the bulk of the financing is taken from regional investments with lower returns.

Reduced liquidity supply also leads to higher yields. According to a US study, a 1% reduction in supply leads to a 15 basis point increase in yields[6]. Rising demand and yield expectations will have a significant impact on both treasury bond markets and corporate credit markets. Based on the figures of the 2025 financing plan [7]of the Government Debt Management Agency Ltd., the Hungarian government’s interest expenditure would increase by HUF 75.6 billion per year, while in a more dynamic boom in Ukraine, this figure would reach HUF 184.7 billion per year. Interest rates on market-based, internationally priced corporate loans could rise by between 59 and 143 basis points on average as a result of increasingly expensive bank funding, depending on the extent of the funding shortfall.

Increasing expenditure on social protection and law enforcement

It is much easier for citizens of Ukraine, which has joined the EU’s common market, to settle in EU countries. Under the pension convention currently in force between Hungary and Ukraine (see: Decree-Law No. 16 of 1963), [8]Ukrainian pensioners settling in Hungary would receive pensions from the public budget according to the Hungarian system. At present, only Hungary has a similar international agreement with Ukraine, so resettlement is likely in the border areas.

Although it is difficult to estimate the number of retired people who will relocate, it is worth assessing the potential fiscal risk. Taking into account the number of Ukrainian citizens aged 65 and over[9], even a 1% resettlement rate would result in a large increase in annual pension expenditure of HUF 203.6 billion, which is a 3.1% increase compared to the current level. A 5% relocation would bring the additional burden to HUF 1,017.8 billion, which would represent an increase of 15.7% in Hungarian pension expenditure.

In 2023, Ukraine recorded two and a half times as many offences (475,000) as Hungary (178,000).[10] Another observation is that Ukraine has significantly reduced its prison population over the last decade due to the deteriorating fiscal situation over the years: among other things, two thirds of former prisoners were at large in 2024 (around 101,000 people)[11]. Given the survey findings that the proportion of repeat offenders in the European Union ranges from 30-50%[12], if 10% of Ukrainian repeat offenders commit crimes in Hungary in the event of EU accession, it would cost taxpayers HUF 25 billion a year to detain them. Another important factor is that a significant part of our country’s outstanding tourism attractiveness is also ensured by a high level of public security, meaning that businesses in the catering and hotel industry, which make a living from tourism, would also suffer.

The staff and resources of the Counter-Terrorism Centre and the police should also be expanded in the light of the increased crime rates expected with Ukraine’s accession. If 1% of the crimes committed in Ukraine today were to be committed in Hungary, we estimate that the state would need to hire around 1,000 police officers and counter-terrorism staff to maintain[13] the current level of public security, which would cost the budget approximately HUF 13 billion more per year.

It should be highlighted that Ukraine has a serious drug problem. According to an estimate, the number of injecting drug users in 2023 was around 317,000, 47 times the Hungarian rate[14]. The care of injecting drug users imposes significant costs on the care system: we estimate that if only one in every 100 injecting drug users moved to Hungary, their care would cost HUF 3.5 billion per year.

Costs for Hungarian agriculture

Ukraine has exceptional agricultural potential, and the favourable logistical environment, relaxed environmental and health standards and lack of EU standards mean much lower production costs for Ukrainian farmers. The possible accession of Ukraine to the EU would create unfair competition, especially for farmers in the region, including Hungarian farmers.

In our analysis, we compared the pre-war export prices of Ukrainian and Hungarian milling wheat of at least third class. The comparison shows that the Ukrainian “Free on Board” price[15] (which already includes the price of transport to the seaport) is 11% lower than the Hungarian purchase price.[16] Assuming a free flow of goods, Hungarian producers would have to reduce their own prices by at least this much to remain competitive with Ukrainian imports, which would mean a loss of more than HUF 30 billion. Since production costs are presumably much lower, in this case Ukrainian traders can sell their produce at a higher discount, while maintaining profits. Each additional 1% price cut would generate a loss in revenue of around HUF 3 billion.

Given the war and the port infrastructure, a 25% price difference is not unthinkable, which would mean a revenue loss of some HUF 73 billion for Hungarian operators for this crop alone. For corn, assuming an 11% lower average price, the loss would be HUF 50 billion, which would increase by HUF 4.6 billion for every additional 1%. A 25% price cut would result in a loss of around HUF 115 billion. In the event of dumping, the combined damage could be as much as HUF 100-180 billion per year, taking the two crops together.

Another key factor is the EU funds channelled through the Common Agricultural Policy. CAP aid is divided into two pillars: Pillar I (around 70%) provides direct hectare-based payments, the distribution of which is determined by historical reference values and progressive levelling. Pillar II (around 30%) supports rural development investments that are shaped by the country’s economic development and agricultural priorities, and require a national co-financing. Ukraine’s accession would presumably bring about major changes for both pillars, given that Ukraine has around 41 million hectares[17] of agricultural land.

In this case, our first example is based on Hungarian area-based payments under Pillar I of the CAP 2021-2027. The total budget for area-based payments is around HUF 300 billion, which means that Hungarian farmers can benefit on an average of EUR 143 per hectare[18]. If we project at least this amount to Ukraine, taking into account the amount of land cultivated, it would take approximately EUR 5.8 billion, or HUF 2,315.8 billion, just for area payments. The amount of other programmes that can be financed under the first pillar and the amount of regional development aid must also be added. Under area payments, Ukrainian farmers would receive more than seven times the amount of the funds disbursed to Hungarian farmers. The total budget for agricultural aid in Ukraine could reach up to EUR 10 billion, or HUF 4,000 billion, because of other items.

On the basis of the EP report referred to earlier, it is interesting to examine how the support framework would be reorganised for the CAP. Based on the MFF data for 2021-2027[19], we calculate that Ukraine would be eligible for EUR 8.9 billion, or around HUF 3,600 billion, in agricultural aid per year, ahead of France, which currently receives the most funds. In comparison, Hungary would receive EUR 1.4 billion per year, which is 15% less than the current budget, or roughly one sixth of the amount Ukraine receives.

Summary

Our analysis examined the impact of Ukraine’s EU accession on the Hungarian economy. It can be concluded that the accession of our eastern neighbour to the EU would entail significant costs in the current situation, so a detailed examination of the issues surrounding accession is warranted.

The cost of reconstructing Ukraine, even according to currently available conservative official estimates, could be two and a half times the Hungarian GDP, and the cost of financing this would divert additional resources from the development of the Hungarian economy. The entry of a large and relatively underdeveloped economy into the single market would significantly transform the financial markets in the region, thereby increasing financing costs for Hungarian players.

Under the current state of the European Multiannual Financial Framework, Hungary would receive 15% less funding for area-based payments alone, which would put Hungarian farmers at a serious disadvantage compared to Ukrainian producers specialising in mass production and working with low production costs, and would create distorted competitive conditions.

Due to the war environment of several years and previous law enforcement practices, the opening of the Ukrainian border poses a number of criminal and health risks, which are difficult to quantify precisely, but which fundamentally affect the quality of life of Hungarian families.

In total, the Russia-Ukraine war has so far cost the average Hungarian household more than two million forints. The direct costs associated with Ukraine’s fast-track accession under the current framework could amount to an additional nearly half a million forints per household per year. Some of the indirect costs, such as the increase in yields due to the rebalancing of financial markets in the region, the cost of policing and health care expenditure, can be quantified, but the impact of several other elements is difficult to quantify. These factors could further increase the cost of Ukraine’s accelerated accession to the EU.