Reconstructing Ukraine

Finance, defence, and human capital

🔸Ukraine Recovery Conference (URC) became a tradition since the start of the war in 2022. It has been held before in Lugano, London, Berlin, and Rome. This time around in Gdańsk (25-26/06), more than 160 agreements were prepared, worth over €10 billion, in support of defense, business and regional development. Three agreements were signed with the European Investment Bank (EIB) worth €470 million, while the European Bank for Reconstruction and Development (EBRD) signed a suite of agreements comprising more than €500 million of finance.

🔸The way the reconstruction will be financed will determine the shape of post-war capitalism in Ukraine for a decade or a generation. Public finance plays a key role in mobilising private capital where that is available, or substitute for it where it is not availabe. Since the war is in its fifth year, one may expect the full reconstruction to last twice as long, even if international partners remain committed as long as it takes. Beyond doubt, Ukraine’s reconstruction is a strategic question for Europe’s future.

🔸The reconstruction is not only a matter of finance. The question of human resources is too often ignored. While collecting the adequate amount of finance will require a continued effort, rebuilding the human capital stock in Ukraine will be even harder. The country suffered a demographic disaster after the Russian invasion of 2022. Ukraine will need a strategy to counter population decline, skills gaps and labor imbalances, and to deal with physical and psychosocial consequences of war.

🔸In Gdańsk, Ukraine’s delegation was led by Prime Minister Yulia Svyrydenko. In itself, the absence of President Zelenskyy did not damage the conference, but it signals a deeper (and probably deepening) rift between Poland and Ukraine. PM Donald Tusk, who hosted the event in his home town, did his best to smoothen the relationship lately, but a genuine return to a good spirited cooperation will not be possible without Ukraine correcting their approach on World War II remembrance.

🔸By the time of the Gdańsk conference, Ukraine received the first tranche (€3.2-billion) of a €90-billion EU loan to Ukraine, which would be spent first of all on defense and security but also on energy resilience. This move was made possible by the change of government in Hungary. On the other hand, the new PM of HU Péter Magyar was keen to dampen the prospects of a fast tracked EU accession for Ukraine, when the conclusions of the European Council (19/06) were drafted.

🔸The conference took place when battlefield news tended to be more favourable for Ukraine. In recent months, Ukraine boldly continued strikes on infrastructure deep inside Russian territory, and reduced the Russian capacity to supply the Crimean peninsula. Kyiv announced a 40 day operation – with the Ukraine’s State Security Service (SBU) in charge – to pressure Russia to end its war. Zelenskyy threatened Belarus with consequences in case they do not withdraw communication equipment which supposedly is there to assist Russian drone activities.

🔸Ahead of the Gdańsk conference, FEPS published the 2nd volume of the book originally titled „Europe and the war in Ukraine” (2023). The updated volume includes chapters on Ukraine’s EU accession prospects, the war’s global ripple effects, and the EU’s evolving security and defence strategy. The original English and the 2 Ukrainian language volumes are available on FEPS’ website.