Russia’s war against Ukraine shows no signs of ending, but it is not too early to start thinking about how to ensure Ukraine’s post-war stability, prosperity and security. Two discussions are already under way: one on financing economic recovery and the other on strengthening Ukraine’s external security. The problem is that these discussions are taking place separately, although the issues are closely linked.
Recovery costs are uncertain because the course of the war is uncertain. Ukraine’s pre-war GDP was about $ 150 billion (£ 120 billion). With a capital-production ratio of three, and assuming that a third of the capital will be destroyed, we are again talking about $ 150 billion. As always, alternative assumptions provide alternative scenarios, but $ 150 billion seems like a reasonable starting point.
This is not an impossible amount of aid for donors to receive. This is one sixth of the size of the NextGenerationEU program, which the EU countries agreed on in July 2020. This is one twelfth of the size of the American Rescue Plan Act, signed by Joe Biden in March 2021.
However, it seems wrong to ask the United States and Europe to fix what Russia has broken. So it is tempting to assume that the reconstruction of Ukraine should be financed by a set of Russian assets. At $ 284 billion, the frozen reserves of the Bank of Russia would certainly meet the bill.
It is true that there is a moral argument for reparations: Russia has started an unprovoked war and has almost certainly committed war crimes by persecuting it. There is also an argument based on deterrence. As Vladimir Zelensky said in Davos this year: “If the aggressor loses everything, it definitely deprives him of his motivation to start a war.”
Security guarantees are as important for economic recovery as they are for the safety of Ukraine’s population. Official aid cannot finance the economy forever; private investment will be needed. But foreign investment will not come in if security is uncertain. In fact, the Ukrainians themselves will not invest either.
The West can strengthen Ukraine’s ability to defend itself by giving it more powerful weapons. But as long as Russia has nuclear weapons and Ukraine does not, the strategic balance will be skewed. A security guarantee from the United States and the European Union could counteract this Russian advantage, but the West does not want to take the risks, not without reason.
The only lasting solution is Russia, reconciled to Ukraine’s political independence and territorial integrity. And reparations are the last thing needed to achieve this. They would mean additional difficulties for the Russian population, which is already experiencing difficulties. As the economy is about to shrink by 10-20% this year, it is not as if Russia is escaping without problems.
Of course, too light an attitude towards Russia risks being overshadowed by pacification. And under no circumstances should Russian President Vladimir Putin be rewarded for his aggression. But there is also the opposite risk. Russia must recognize Ukraine’s political and territorial integrity. Further punishment in the peace talks will not make this easier. We want future Russian governments to abide by international norms. Referring to these norms for extracting every kilogram of flesh will not make this more likely.
There is an obvious analogy with the German reparations after the First World War and the provision for guilt for war from the Treaty of Versailles. True or not, the Russians now, like the Germans then, do not consider themselves solely responsible for the war. The clause in the war guilt treaty gave nationalist German politicians a complaint to campaign against. The winners’ financial demands gave the German governments a cover for ignoring the provisions of the disarmament treaty and the ban on establishing a customs union with Austria. And reparations have complicated the task of stabilizing and reconstructing the international system. John Maynard Keynes foresaw all this and more in his far-reaching economic consequences of peace.
This indictment for reparations after the First World War should not be overdone. The reparations themselves did not lead to the Great Depression, and the German depression did not in itself lead to Hitler and World War II. The analogy with today’s circumstances, like all historical analogies, is imperfect. However, this experience is a warning tale.
There are other arguments against reparations. The legality of the seizure of frozen Russian assets is unclear. Western governments could pass licensing legislation, although it could then be seen as bending the law at their convenience. The UN could set up a commission with the power to confiscate these assets, although countries like China, imagining they could one day be targeted, would oppose the move. In any case, the seizure of Russia’s foreign assets will make other governments think twice before investing abroad.
The central point, however, is that demanding reparations will make it harder to imagine Russia reconciled with Ukraine’s independence and territorial integrity. With a hostile Russia on its doorstep, it will be harder for Ukraine to stay safe, much less maintain stable and steady economic growth.
Barry Eichengreen is a professor of economics at the University of California, Berkeley and a former senior political adviser at the IMF.
© Project Syndicate
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