EU bets on reconstruction of Ukraine – POLITICO

It’s a huge request: to get countries and investors to invest billions of dollars in aid and investment in a country at war.

But for a growing number of countries, backing Ukraine seems like a gamble worth making, as Europe tries to avert a humanitarian and economic disaster on its continent.

The price is already a whopping 411 billion dollars, second to the World Bank, the United Nations and the European Commission – a figure that will only increase as the war progresses.

But as top global players, governments and private investors flock to London on Wednesday for Ukraine’s recovery conference, signs are that the Western world is preparing to open its purse strings to help rebuild the ‘Ukraine.

On Tuesday, the European Commission unveiled a new multi-year €1 billion project to help rebuild Ukraine, the first major economic group to outline a multi-year financing plan.

Private investors are also melting away. BlackRock and JPMorgan Chase are working with the Ukrainian government on a new fund for the development of Ukraine, essentially a reconstruction fund that would draw on seed capital for reconstruction projects.

It is crucial for Ukraine that the recovery project starts now. “Reconstruction is already underway. It is part of our resistance,” Oleksandra Azarkhina, Ukraine’s deputy minister for communities, lands and infrastructure development, told POLITICO. « People have left Ukraine, but at the same time millions of people stay here, work, live here, » she said. « We need to find ways to provide access to these people’s basic needs. »

« Ukraine needs help, not just on the battlefield, but in terms of public and private investment. »

In his speech on Monday evening, President Volodymyr Zelenskyy underlined the importance of the conference, saying that Ukraine’s economic recovery « should prove to the world that freedom is invincible ».

Beyond wartime

Seven decades after the US-managed Marshall Plan helped rebuild Western Europe after WWII, Europe finds itself at a defining moment: asking whether it should give Ukraine the resources and investment it has need to rebuild, even as war rages in the east and south of the country.

It’s a herculean task. Adjusted for inflation, the Marshall Plan – a package of loans and grants – provides less than a third of what Ukraine needs. Moreover, the scale of the challenge keeps changing: the destruction of the Nova Kakhovka dam this month has caused enormous environmental and infrastructure damage, showing how Ukraine’s needs are changing in real time.

“People want to get their life back to normal, go to school, go to work. We cannot dissuade people from this. It is something that should not be postponed until the post-war period because it is urgent and it is needed now,” Deputy Prime Minister of Ukraine Olha Stefanishyna told POLITICO.

Ukraine’s needs range from rebuilding the more than 300 bridges that have been destroyed, to demining and managing the millions of tons of industrial waste generated by Russian bombing.

But despite the scale of the challenge, the EU is going through with it, at least for now.

On the eve of the summit, the European Commission unveiled a new plan to help the country manage its day-to-day operations and finance Ukraine’s reconstruction. Dubbed the ‘Ukraine Facility’, it will provide up to €50 billion in financial support to Ukraine from 2024 to 2027: €33 billion in loans and €17 billion in grants, which will be managed through a new special facility called Reserve Ukraine.

In addition, the Commission is also in talks with the European Investment Bank to provide EU budget guarantees to finance another €100 million of loans to Ukraine.

It is a significant commitment by the EU at a time when its budget is facing many demands from member states: from building its collective defense capacity and against irregular migration, to strengthening the competitiveness and industrial base of the EU.

The pledge “will provide perspective for our partners in Ukraine – predictability – and should also incentivize other donors to step up as well,” European Commission President Ursula von der Leyen said on Tuesday when announcing the plan in Brussels. But the EU’s motivation is not purely altruistic. Brussels has skin in the game and is vulnerable to any instability in Ukraine. Following the decision of the European Council of concession The accession status of Ukraine and Moldova last year, Ukraine is on track to join the EU. It is therefore in the EU’s interest that a country of 40 million that may one day join the bloc is a stable and economically sound democracy.

The EU is seeing Ukraine’s potential in other ways as well.

European Commission Vice-President Maroš Šefčovič believes that Ukraine – the largest country, by area, which is entirely in Europe – could be a crucial asset for Europe. “If you look at critical raw materials, Ukraine has 21 out of 30 materials necessary from the EU. It could completely replace Russia’s supplies of critical raw materials to Europe,” he told POLITICO.

Similarly, Ukraine could serve as an energy storage hub in Europe. “Ukraine has the largest underground gas deposits in Europe: 33 billion cubic meters, right on the border with Slovakia. The potential is huge,” she said.

« It could be a very important strategic asset for the European Union’s energy security, » he added, also pointing to hydrogen as another possible growth area for energy.

Difficult way to go

But challenges remain; much less the potential for corruption in Ukraine, of which many EU countries remain wary. As a result, the European Commission package comes with strings attached.

Brussels will exercise significant control over how the money is distributed and used. According to the Commission’s proposal presented on Tuesday, the Ukrainian government must prepare a « plan for Ukraine » detailing its vision for the country, while meeting EU standards on governance and public administration. The money would be disbursed on a quarterly basis, provided conditions are met.

Corporations and governments are also grappling with the challenge of investing in projects in a country still at war. Ukraine’s new development fund would not actually start investing money until after the war.

Ukraine has rejected these concerns. Stefanishyna points out that most of Ukraine is not occupied and not in Russia’s sights. “Land aggression is highly unlikely to return to this territory. People are already coming back,” she says.

But in a chilling reminder of Russia’s reach, Moscow launched a barrage of drone and missile attacks on Ukraine on Monday night, aiming as far as Lviv, just 70 kilometers from the Polish border.

Looming over the investment discussion ahead of this week’s conference is the issue of insurance, a huge obstacle for companies wanting to invest in the country.

Commission Vice-President Valdis Dombrovskis She said the Commission was last week in discussions with several partners, including the UK and the European Bank for Reconstruction and Development, on a potential scheme to incentivize the insurance sector to launch war insurance policies for Ukraine. Further details are expected to be announced on Thursday.

The other controversial issue is whether Russian assets, especially the estimated $300 billion in frozen reserves of Russia’s central bank, should be used to finance Ukraine’s reconstruction. A bipartisan bill supporting this move was introduced in the US Senate this week.

In Brussels, the jury is still out as the EU tries to reach a consensus amid concerns in some countries about the legality of such a move and the precedent it could create, with leaders due to discuss the issue at a summit next week . As the war in Ukraine and the debate over how to finance the country’s reconstruction continues, the question of Russian assets could become the next major battleground.

But even as these hurdles are overcome, many are warning of the scale of the challenge ahead.

Jacob Funk Kirkegaard, a senior member of the German Marshall Fund, fears the EU’s plan isn’t ambitious enough, particularly if the EU decides that Ukraine will eventually become a member of the European Union by the early 2030s.

« Of course, this depends on how the war goes, but none of the estimates I’ve seen suggest that this is close enough for a full, pre-loaded recovery that would make Ukraine joining the EU feasible in about 10 or 12 years. » ,  » he says.

« You may have a reconstruction of Ukraine that is not ambitious enough. »

Paola Tamma contributed to the report.