Though the end of the war in Ukraine is nowhere near in sight, the problem of eventual rebuilding is already the subject of many analyzes, donor conferences and debates.
Political, social, and economic recovery (all the prerequisites of long-term stability) will take years and the costs are – or will be – enormous. Estimates vary, but as of now, about 10 percent of housing stock across the country has been damaged or destroyed, along with about 33 percent of the overall transport infrastructure and about 50 percent of the energy infrastructure.
The World Bank has published its latest Rapid Damage and Needs Assessment in February 2024, putting the total cost of reconstruction and recovery at $486 billion, up from $411 billion estimated in 2023. Kyiv’s own assessment is even higher, a whopping $750 billion.
The longer the war goes on, the higher the bill will climb. Some already speak of $1 trillion.
Though most agree that the West, the EU and the U.S. should, or at least, could, bear most of the burden of rebuilding Ukraine into a prospering democracy, the how is still a mystery.
Due to political bickering, the latest U.S. military assistance package could be signed into law by President Biden only on April 24, 2024. Though the allocated $61 billion is only a mere fraction of the necessary amount, critics have already claimed that money would be better spent on domestic priorities.
The EU has been also active. Since the start of the war, the EU has made available over $126 billion in financial, military, humanitarian and refugee assistance. A multi-agency donor coordination platform was created in January 2023. Later, the Ukraine Facility was established; a “dedicated financial instrument to enable coherent and predictable support” for the 2024-2027 period. In February 2024, $54 billion was committed to the Ukraine Facility, then, a couple of months later, $1.6 billion was generated from immobilized Russian assets.
So far, so good. But this was barely enough to keep Ukraine above water.
The EU (and Washington) should either start to print money or find another way to conjure billions of dollars out of their budgetary top hats, to be able to navigate the myriads of domestic and international challenges, from cost-of-living crisis to high energy prices or climate change, and to keep the promises made to Ukraine.
The debate about the “first-ever revision” of the EU’s long-term budget has been an ongoing issue for many years.
In February 2024, the European Parliament and Council finally agreed to revise the ceilings of the EU’s multiannual financial framework (MFF) for the remainer of the 7-year planning period. In the political agreement, the above-mentioned Ukraine Facility was also established: €33 billion in loans, guaranteed by the EU budget, and €17 billion in grants, financed by the EU budget through a special instrument.
It took years of negotiations to modify the 2021-2027 MMF.
The real “overhaul” of the €1.2 trillion common budget is an even trickier issue.
Brussels aims to introduce a wide range of reforms to “make the budget more efficient”.
And bigger. Commission VP Valdis Dombrovskis declared that “there is nothing, legally speaking, preventing the EU budget to be bigger than 1 percent”.
There are many supporters of the revamp, advocating for giving more role to the Commission when it comes to budgetary decisions, or for ditching the unanimity requirement. “The needs are overwhelming, and public resources are scarce. This implies that political red lines preventing common action, common financing, and single market deepening must be challenged when the gains from doing so are high.”
There were also claims that more centralization was needed before the EU was ready for a new round of enlargement, claiming that “the institutions and decision-making mechanisms were not designed for a group of up to 37 countries and … they make it difficult even for the 27 to manage crises effectively and take strategic decision”.
One particularly sensitive issue is the proposed change to cohesion policies and the allocation of cohesion funds. Instead of the current method, Brussels hopes to tie payments to economic reforms instead of automatically compensating poorer countries.
Those favoring the reforms claim that attaching “sticks” to the payouts will make spending “more effective and impactful”, comparing the new rules to the conditionality clauses attached to the COVID funds.
But many fear that the money, about one third of the overall EU budget, that has been so far used to close the gaps between poorer and richer regions within the EU itself, will be either used for political blackmailing or will be “diverted” to finance the costs of reconstructing Ukraine.
Many of the net-beneficiaries of the EU are the same countries that are most directly affected by the war in Ukraine: Poland, Romania, Hungary, Slovakia and the Baltic States. These states often contribute a significant portion of their own GDP to support Ukraine. A loss of EU funds could have unforeseen consequences on their support efforts.
Would such reforms go through, the Commission would have a larger budget at its disposal and more discretionary power on how to spend it, at the expense of the Member States.
At first sight, this seems like the slightly modified version of the never-ending saga of net-contributors vs net-beneficiaries. Only this time, the net-contributors will also “lose”: they will not only pay more into the common budget but will also have less influence on how to spend it.
