Economic impact of peace in Ukraine


It is not too early to start thinking about what guarantees the stability, prosperity and security of postwar Ukraine.

© Keystone

Russia’s Ukrainian war does not show signs of ending soon, but it is not too early to start thinking about what guarantees Ukraine’s stability, prosperity and security after the war. Two discussions have already taken place. One is about financing for economic reconstruction and the other is about the situation of Ukraine’s foreign security. The problem is that these discussions are held separately, even though the two issues are closely related.

The cost of reconstruction is random, as there is also the process of war. Ukraine’s prewar GDP was about $ 150 billion. Assuming a capital production ratio of 3 and one-third of the equipment destroyed, it would return to a figure of $ 150 billion. As always, different assumptions give rise to different scenarios, but $ 150 billion seems like a good starting point.

It would not be impossible for the donor country to provide the amount of such assistance. This amount is only one-sixth of the Next Generation EU recovery plan agreed by the European Union member states in July 2020. It is also one-twelfth of the US Rescue Planning Act signed by US President Joe Biden. Law of March 2021.


However, it seems unusual to ask the United States and Europe to repair what Russia destroyed. Therefore, it is tempting to suggest that the reconstruction of Ukraine should be covered by the seizure of Russian assets. The Central Bank of Russia has a freeze reserve of $ 284 billion, which is arguably enough to pay the bill.

Indeed, there is a moral debate about compensation. Russia wages unjust wars and almost certainly commits war crimes. You can also discuss deterrence. As Ukrainian President Volodymyr Zelensky said in Davos this year, “when the invaders lose everything, they lose the motivation to start a war.”

Security is as essential to economic recovery as the security of the Ukrainian people. Public aid cannot fund the economy forever. Private investment is essential. However, if security is not ensured, foreign investment will not flow. Fortioli, Ukrainians themselves do not invest.

Western countries can strengthen Ukraine’s defense capabilities by supplying Ukraine with more powerful weapons. But unless Russia has nuclear weapons and Ukraine does, the strategic balance is distorted. Security granted by the United States and the European Union could offset this Russian advantage, but Western nations are not without reason and are reluctant to take this risk.

The only permanent solution is Russia, which has reconciled with Ukraine’s political independence and territorial integrity. And repair is the last thing to achieve. They will mean further difficulties for the already attempted Russian population. Russia cannot be punished as the economy is set to shrink by 10% to 20% this year.

Of course, being too slow against Russia would run the risk of succumbing to the appeasement policy. And Russian President Vladimir Putin must not be rewarded for his attacks at any cost. But there is also the opposite risk. Russia must be aware of Ukraine’s political and territorial integrity. Further punishing her during peace talks does not help the problem. We want the future Russian government to respect international rules. Calling these rules, extracting all the “pounds of meat” from the Russians and asking them what they can’t afford, rarely achieves this goal.

The similarities between the reparations sought from Germany and the war reparations clause of the Treaty of Versailles are clear. Whether right or wrong, Russians today do not consider themselves alone responsible for the war, unlike Germans of the past. The treaty’s war crimes clause has given German nationalist politicians dissatisfaction with the campaign. The victor’s financial demands gave the German government an excuse to ignore the provisions of the treaty on disarmament and the ban on the establishment of a customs union with Austria. And compensation made the task of stabilizing and rebuilding the international order more difficult. John Maynard Keynes was one of the first to understand more. He expressed his view in the pre-surveillance work “Economic Impact of Peace” published in 1919.

It is not a problem to be based entirely on the indictment of damages requested after World War I. They alone did not give power to Hitler and cause the Great Depression that led to the outbreak of World War II and the Great Depression in Germany. Nevertheless, this sequence sounds like a warning.

Other discussions can proceed with compensation. It is uncertain whether it is legal to seize frozen Russian assets. Western governments have the ability to pass bills that make this possible, but as a result, they can be seen as bending the law to their liking. The United Nations can establish a committee with the authority to seize these assets, but countries like China are taking the initiative, believing that they themselves may one day be subject to such measures. I disagree with. In any case, the seizure of Russia’s foreign assets will warn other governments of cross-border investment.

But the central point is that this claim makes it much harder to imagine Russia reconciling with Ukraine’s independence and territorial integrity. With hostile Russia in front of us, it will be more difficult for Ukraine to provide sufficient security to support strong and stable economic growth.

Translation from English by François Boisivon

Copyright: Project Syndicate, 2022.