EU Commission proposes Ukraine reconstruction platform

EU Commission President Ursula von der Leyen gives a press statement on the Commission's proposals regarding 'REPowerEU, defence investment gaps and the relief and reconstruction of Ukraine' at the European Commission, in Brussels, Belgium, 18 May 2022. [Stéphanie Lecocq]

Along with a €9 billion increase in short-term budgetary aid to the Ukrainian government, the European Commission proposed on Wednesday (18 May) setting up a reconstruction platform for Ukraine to help with the massive financing needs of rebuilding the country.

The platform, named “RebuildUkraine”, would be led by both the Commission and the government in Kyiv but EU countries, financial institutions and other like-minded partners could also choose to join the reconstruction effort.

“The European Union has a responsibility and a strategic interest in leading this reconstruction effort,” Commission President Ursula von der Leyen said on Wednesday.

However, the Commission remained vague on how much the EU itself was willing to chip in for the reconstruction. The Commission’s executive vice-president, Valdis Dombrovskis, said that “Ukraine’s reconstruction needs are vast and damage continues every day, so we cannot give an exact figure”.

“But yes, it’s fair to assume that we are talking about very vast amounts,” he added.

According to figures from the Kyiv School of Economics, the total economic losses in Ukraine since the war began on 24 February are estimated at $564-600 billion, with direct documented infrastructure damages totalling more than $94 billion.

Liberal EU lawmaker and economist Luis Garicano told EURACTIV that based on these numbers, there would need to be about €100-200 billion of public money made available to finance the reconstruction.

Who will pay up?

An attractive potential source of funding for this are the Russian assets that have been seized following the sanctions against Moscow. Although the proposal is controversial, billions worth of oligarchs’ assets, and around $300 billion worth of Russian Central Bank reserves might be there for the taking.

In a recent interview, German Finance Minister Christian Lindner showed himself open to the idea of using the seized Russian reserves for the reconstruction of Ukraine.

Counting on this involuntary Russian contribution, as well as a sizeable contribution from the US, Garicano estimated that about €50-60 billion would have to be provided by the EU. To him, an important financial contribution by the EU is a precondition for the bloc to take a leadership role in the reconstruction efforts.

“If we are going to co-lead this, it means that we are willing to take a main role in putting serious money on the table. The solution that [the Commission] proposes only makes sense if we are willing to lead,” he told EURACTIV.

“Until now Europe has always been behind. It has been dragging its feet,” Garicano added.

Together with his colleague in the European Parliament Guy Verhofstadt, he recently proposed the issuance of Ukrainian war bonds that would be backed by the EU as a whole.

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Investment and Reform

Besides the amount and the distribution of the burden, the way in which the reconstruction funds would be distributed will be another crucial point.

President von der Leyen said the reconstruction principles “should combine investment and, immediately, reforms,” adding that this would support Ukraine in pursuing its European path.

Therefore, similarly to the EU’s pandemic recovery fund, reconstruction funds could be made conditional on reforms that would help Ukraine on its way to an eventual EU membership.

“The RebuildUkraine reconstruction plan needs to be embedded in a strategic partnership with the European Union because it will be an anchor for Ukraine’s European future,” said Economy Commissioner Paolo Gentiloni, who, like von der Leyen, carefully avoided talking about Ukraine’s membership during Wednesday’s press conference.

It is also unclear whether the financial assistance would come in the form of grants, or loans that Ukraine would have to repay. A recent ebook drafted by a group of economists argued for the use of grants since an over-indebted Ukraine would find it hard to grow its economy.

€9 billion to finance urgent expenditure needs

The Commission also proposed a new exceptional macrofinancial assistance of up to €9 billion in the form of loans to help keep the Ukrainian government solvent in the coming months. For this to be possible, the Commission needs the support of EU member state governments, however.

“We will need EU countries to provide additional guarantees to support this programme,” Dombrovskis said.

Depending on different estimations, the Ukrainian government currently needs around €5-8 billion every month to keep its public services and the war effort running. The International Monetary Fund has estimated Ukraine’s balance of payments gap until June at about €14.3 billion.

The EU’s macrofinancial assistance alone will thus not be enough to keep Ukraine going for long and Dombrovskis called for international partners and international financial institutions to step in as well.

In the United States, meanwhile, Congress approved more than $40 billion in emergency funding for Ukraine, bringing the total US emergency funding for Ukraine up to more than $50 billlion.

[Edited by Zoran Radosavljevic]

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