Europe plans to pay for most of Ukraine’s reconstruction

The European Union plans to set up a solidarity trust fund to finance the reconstruction of war-torn Ukraine as member states have been told they should pay most of the costs.

The European Commission told diplomats it is working on an EU instrument focused on the country’s long-term needs rather than a multilateral tool, as the bloc will bear much of the costs, according to people familiar with the discussion.

Modeled after the post-pandemic recovery fund for member states, it would finance investments and reforms in agreement with Ukraine’s government, but it is unclear how much would be provided through grants or loans, the people said.

With the war still ongoing, the EU’s executive arm is unwilling to put a price tag on the work, but told EU ambassadors the figure would reach hundreds of billions of euros over decades.

Issues of post-war reconstruction and possible war reparations are expected to attract attention in the coming weeks, as top officials in Brussels and Washington plan to discuss ways to financially support kyiv and ensure the huge amount of money is not lost. wasted, EU officials said.

Corruption Control

The World Bank will host a ministerial session Thursday on Ukraine during the International Monetary Fund spring meetings in Washington. Commission Vice President Valdis Dombrovskis is expected to attend, an EU official said.

It is difficult for countries to go too far on any plan with Russian forces still attacking Ukrainian cities, but even if the war ends, there will be significant obstacles. Ukraine’s endemic corruption, and lack of strong oversight mechanisms, are two of the biggest.

The Netherlands suggested that any new reconstruction tools could be used to help put in place governance structures in the country that would bring it closer to the EU and ease its eventual accession path, the people said.

As a first step, the commission would conduct a comprehensive financial needs assessment together with the World Bank. The Ukrainian government estimates that the destruction of Russian forces on its territory amounts to US$ 1 billion.

Most of the initial aid would go towards rebuilding infrastructure and supporting the provision of public services. Ukrainian President Volodymyr Zelensky told Commission Chair Ursula von der Leyen that his government needs $5 billion to $7 billion a month to cover salaries and other social expenses.

Agricultural Support

The commission is also considering extending guarantees to help businesses. Ukraine estimates that about a third of companies have completely stopped their activities and 45% have reduced their production.

In particular, the war has affected the agricultural sector, one of the most important economic activities in the country, as large portions of land cannot be used, farmers face rising costs and exports have been hampered.

Some member states, including Sweden and Slovenia, have suggested exploring ways to redirect Russian funds to Ukraine, for example by collecting extra profits from high energy prices or using the frozen assets of sanctioned Russian oligarchs.

The bloc has already disbursed 600 million euros ($647 million) in soft loans since the war began and is fast-tracking the approval of a further 600 million euros that could arrive this summer, an EU official said. The EU is also working on an additional loan package that could be of similar magnitude.

Separately, the IMF approved $1.4 billion in emergency financing for Ukraine and canceled $2.2 billion of Ukraine’s previous $5 billion loan, as it was clear that Ukraine could no longer meet the reforms and conditions necessary to receive the rest of that loan, including the fight against corruption.