Ukraine is engaged on two fronts: there is the war fought with weapons along the line of contact; then there is the internal front, the social and productive fabric of a country that must resist in order to secure a future. It’s tough: In January, in the midst of a brutal winter of bombs on homes and the energy grid, Ukrainian business confidence hit a low. But the same indicator signaled economic expansion in April and May; thus the Ukrainian GDP, according to Dragon Capital, an investment company in Kiev, will grow by 3 percent this year. It should be remembered, however, that the country’s economy has shrunk by a third since the start of the war. Therefore, the future above all means rebuilding, and to do this we need mountains of money.
It’s not easy, foreign investors are understandably very cautious, because the war is still long, and many people of working age are fighting or have emigrated. But the foundations of this reconstruction must be laid now.
A two-day conference attended by politicians, financiers and entrepreneurs who raised money (still very little) and discussed how to support the Ukrainian recovery in the years to come has just concluded in London. According to the European Union, World Bank, United Nations and the Ukrainian government, reconstruction will cost at least $411 billion over the next decade. And two-thirds of this sum will have to come from public funding because attracting private money will be difficult at first. A considerable part will come from the European Union, said Ursula von der Leyen, the president of the European Commission, who has proposed to allocate 45% of the funds until 2027, in loans and grants. With these calculations, it is estimated that the cost of the reconstruction, which should fall on the public budgets of Kiev’s allies, will be around 0.1% of Western GDP. A figure that is not impossible, but it must be taken into account that times are more difficult here too: debt, costs of the energy transition, inflation and higher interest rates could make aid less generous, despite the fact that it is crucial to guarantee Ukraine the maximum support. That is why there is a lot of discussion, and it was also done at the London conference, on the possibility of using Russian money frozen after the start of the war by Western banks and governments.
Armored Moscow, coup in the air: this is what Putin risks and how the war for the succession will change ANNA ZAFESOVA 24 June 2023
Total assets amount to approximately $330 billion. In the European Union, 200 billion from the Russian central bank have been blocked, plus 30 billion belonging to the oligarchs. The first thing anyone would think to do is brutally confiscate that money and send it to the Ukrainian central bank account. In reality, the issue is much more delicate for legal and financial stability reasons. Beyond the legal troubles, the European Central Bank privately warned Brussels that confiscating Russian funds or giving the interest earned on those accounts to Ukraine could undermine confidence in the euro, according to the Financial Times. “The implications could be substantial: it could lead to a diversification of reserves from euro-denominated assets, increase funding costs for European sovereign bonds and lead to a diversification of trades,” explained the ECB note.
And yet Brussels is determined to use that money. The Commission said today that European governments want frozen Russian assets to finance the reconstruction of Ukraine, and that it is converging on a number of options deemed feasible. “Discussions with Member States on the way forward are progressing well,” said Commission spokesman Christian Wigand. “There is general support on this issue and further convergence on options, so we believe it will be possible to find solutions “, he added.
And what are these options? Confiscating the money directly, apparently the most immediate and fairest move, is the least probable scenario, if not completely out of the question. European Union officials have instead explained that there could be legal ways to divert interest generated by Russian assets to Ukraine, despite the ECB’s warning. There is also the possibility of taxing the profits made by the custodians of the assets. In any case, a concrete proposal will arrive “before the summer break,” said van der Leyen. Which means, probably, in July.