At this moment, an unprecedented victory of democracy is being brought by Ukrainian defenders to the EU and its Eastern neighbourhood. The EU has its Europe moment to help Ukraine, a brave and heroic neighbour, to achieve a victory against tyranny, embrace the democratic change in the region and propose an ambitious far-reaching EU recovery plan to rebuild and restore a prosperous Ukraine. The EU leaders have made this call in the European Council and the European Commission took the leadership and has started a preparatory work. However, the time is running fast.
At this point, studies of the World Bank, Kyiv School of Economics have already indicated preliminary financial needs to recover the economy of Ukraine. These range from 60 to 100 billion euros necessary to restore the infrastructure capacity and from 500 million to 1 trillion euros necessary to invest into a complete restoration of Ukrainian economy.
But as the Russian aggression continues, these costs are increasing speedily. And we have to be prepared not only for this.
Focus on Ukraine’s EU membership Strategy
The recovery of Ukraine will be a long term process, which has also has urgent financial needs.
The budgetary support needs of Ukraine alone exceed 5 billion euros per month, which are necessary to maintain the viability of social fabric for the Ukrainian citizens, in particular for displaced persons, which has to be done together with a rebuilding of key public infrastructure utilities. Besides the immediate restoration needs, the EU has to plan in advance the longer term investments into Ukraine’s economy, which have to take into account the EU membership perspective and financial needs to fulfil the EU membership obligations.
The EU Recovery Plan for Ukraine should become a comprehensive tool to help Ukraine’s EU membership preparations because the EU accession will ensure an effective use of allocated resources and EU membership perspective will be a key factor for attracting the new investors to modernise Ukraine’s economy and unleash its growth potential.4
EU fundraising capacity
The unprecedented financial needs for short to long-term recovery of Ukraine will require unprecedented measures to be provided by the EU. The EU has effectively confronted the economic consequences of the Covid-19 pandemics with brave decisions. The EU has managed to increase the own resources ceiling to address the unprecedented investment needs and relaunch its economy with a help of a Recovery Plan for Europe. In a similar fashion, the EU can be able maintain the same ambition to support the large scale investment needs for Ukraine. However, again, the EU has to act very quickly.
The EU has to develop quickly an adequate to Ukrainian needs borrowing capacity to raise the new funds in international markets, which could be made possible by increasing a limit of its own resources ceiling if this would be necessary. In addition to that, the EU should use all available means to mobilise new budgetary allocations, as well as to use the frozen and seized assets of Russian and Belarusian elites and oligarchs who have supported and financed the war of aggression against Ukraine.
The EU will have to coordinate the fundraising activities with other international donors and its recently proposed financial arm (Ukraine Solidarity Trust Fund) for the recovery plan, should be open also to all other donor contributions from the governments and international financial institutions standing in defence of Ukraine against the aggressor states of Russia and Belarus.
The EU, as well as Ukraine, have to develop adequate implementation capacities for this plan. The EU together with Ukraine have to create necessary bodies and procedures to administer together the large-scale long-term projects and apply necessary means of EU financial engineering for public and private investments.
To this aim the EU should consider to establish the Ukraine Recovery Agency, as it was the case for a reconstruction of the Western Balkans. This agency could ensure a joint ownership of administration together with the donor countries and institutions. This agency can involve advisory and governing structures, and a secretariat, the role of which can be performed by the European Commission’s Support Group for Ukraine (SGUA), which has a long record of supporting reforms in Ukraine.
Ukraine should get ready as well and establish its national coordination body, develop recovery strategy and priorities, set up its central and regional project management teams, which should have a good knowledge of working with EU recovery plan instruments for public and private investments.
Ukraine together with EU, donor countries and institutions should consider creating a financial vehicle for the implementation of recovery plan and for this purpose establish national development bank with support of donor governments and international financial institutions as the shareholders. The EU recovery plan should also help to boost Ukraine’s banking resilience. During the recovery period Ukraine will need all necessary aid, such as currency swaps, deposit guarantees, etc., to the banking sector to address the direct costs of the war.
The EU within the recovery plan structures could help Ukraine to develop a patronage system for an immediate humanitarian and restructuring aid to Ukraine.
The EU could coordinate with donor countries an immediate assistance to each of 27 administrative regions in Ukraine, which can be looked after by a donor country or a group of countries and institutions. The patronage system at an initial phase would rely on the experience of donor countries and in this way would help an early deployment of the necessary aid to particular regions having the urgent needs.
The Ukrainian government, on its behalf, could develop a centralised assessment of the real needs according to a common methodology, which would help early streamlining of financial flows from the donors to the regions in need.
Reforms should go together with investments
The EU Recovery Plan for Ukraine should keep a close look on Ukraine’s reforms agenda.
It should work together with Ukraine’s EU membership strategy. One should be helping each other. The approximation of EU legislation and requirements would help the transparency and effectiveness of the recovery plan implementation. The recovery investments will help a more effective implementation of EU acquis in infrastructure and trans-European interconnection clusters, such as environment, energy, transport or communications.
The EU recovery plan should also help to ensure the stability of Ukraine’s public finances from now on to the post-war period. The steering of Ukraine’s EU membership reforms agenda should be part of the recovery plan and could be done together with SGUA.
The EU Recovery Plan for Ukraine should also adequately address the social support needs for the citizens, secure the return of human capital to the country and ensure a sustainable growth of the Ukrainian economy. Equally, Ukraine’s EU membership strategy should include the necessary measures to boost the social resilience throughout the country.
Reparations should be included
The EU Recovery Plan should have an international accountability component and ensure that war reparations, frozen and seized assets of Russian and Belarusian elites and oligarchs can be automatically transferred to Ukraine Solidarity Trust Fund being the financial arm of the plan.
The EU should adopt, if needed, necessary regulations, which would allow these transfers to be made quickly and effectively. This might also depend on the pending decisions of national and international courts regarding the war, genocide and aggression crimes committed against Ukraine.
The EU should also take an active part in setting up a special tribunal to hold Russia and its allies accountable for aggression against Ukraine, which may be also instrumental in settling the necessary compensations to Ukraine for the war of aggression damage.
The preparations should start now and the EU should start without delay bringing forward clear claims for reparations. These may be linked to direct or indirect losses made by the war of aggression against Ukraine, be well documented and appropriately raised.
The EU side should ensure that the donors could be repaid back from the reparations. This can be done by the means of bridge financing, according to which the funding of aid programmes could have access to the funding from reparations.
The EU Recovery Plan for Ukraine should have adequate financial controls based on a transparent use of key performance indicators, which could be also synchronised with the implementation of Ukraine’s EU accession strategy.
The EU Recovery Plan for Ukraine should have a visionary strategy for the recovery assistance to become a symbol of EU support to democracies in their fight against autocracies.
The EU should see the wider context of this war against Ukraine, which will open the doors to unprecedented democratic victories in the EU Eastern neighbourhood.
Member of the European Parliament, former Prime Minister of Lithuania