Economic consequences of peace in Ukraine

Therefore, it is too early to start thinking about how to ensure the stability, prosperity and security of post-war Ukraine. There are currently 2 discussions taking place: one on financing economic reconstruction, and the other on guaranteeing Ukraine’s external security.

The problem is that these discussions are continuing separately from each other, even though both of these issues are closely related. The costs of reconstruction are still unclear, as is the course of the war. Ukraine’s GDP before the war was about 150 billion dollars.

Given the capital ratio-output equal to 3, and assuming that 1/3 of the capital stock will be destroyed, we are again talking about a sum of 150 billion dollars. As always, alternative assumptions give us alternative scenarios. But the figure of $150 billion seems like a reasonable starting point.

And it is not impossible to collect from donors. As it is 1/6 of the program “NextGenerationEU”, which the states of the European Union agreed to in July 2020. Also, it is 1/12 the size of the American Rescue Plan Act signed by the President of the USA Joe Biden in March 2021.

However, it seems wrong to ask the United States and Europe to build what Russia has destroyed. It is therefore tempting to suggest that reconstruction of Ukraine should be financed with the use of ASSET Russian. At $284 billion, Bank Q’s frozen reserveseof Russia, would adapt to this process.

And there is actually a moral rationale for reparations: Russia started an unprovoked war, and it is almost certain that it committed war crimes. But there is also an argument based on the prevention strategy. As the Ukrainian president said Volodymyr Zelensky in the Forum Davos of this year: “If the aggressor loses everything, then this definitely deprives him of the motivation to start another war in the future”.

Security guarantees are as vital to economic recovery as security for the Ukrainian population. Official aid cannot always finance the Ukrainian economy, so private investment will be required. But foreign investments will not go to Ukraine, if there is no security.

In fact, even the Ukrainians themselves will not invest in such a situation. The West can strengthen Ukraine’s ability to defend itself by sending it more powerful weapons. But as long as Russia is armed with nuclear weapons and Ukraine is not, the strategic balance will always tilt in Moscow’s favor.

A security guarantee from the US and the EU could dilute Russia’s advantage, but the West is not without reason reluctant to face the potential risks. The only viable solution is for Russia to recognize Ukraine’s political independence and territorial integrity.

And damages are the last thing needed to achieve this. As they would mean additional hardship for a Russian population that is already experiencing a lot of hardship. While the economy is expected to decline this year by 10-20 percent, Russia is in a delicate situation.

Of course, a too soft approach to Russia at this time is dangerous. And Putin should not be rewarded under any circumstances for his aggression against Ukraine. But there is also the opposite risk. Russia must recognize the political and territorial integrity of Ukraine. But further punishment during the peace negotiations will not make this any easier. We want future Russian governments to respect international norms.

But invoking these norms to obtain reparations from Russia would not make this more likely to be achieved. There is a clear analogy with German reparations after World War I and the Treaty of Versailles’ war guilt provision.

Rightly or wrongly, the Russians today, like the Germans then, do not see themselves as solely responsible for the war. The treaty’s war guilt clause gave German nationalist politicians reason to complain, making it a major campaign issue.

The financial demands of the winning countries prompted the German governments to disregard the treaty’s provisions on disarmament, and the prohibition of establishing a customs union with Austria. Moreover, reparations complicated the task of stabilizing and rebuilding the international system.

The famous British economist John Maynard Keynes, predicted all this, and much more in his book “The Predictable Economic Consequences of Peace”. But the blame for post-World War I reparations should not be overdone. It wasn’t just reparations that caused the Great Depression.

And it wasn’t just the economic crisis in Germany that escalated HITLER in power later at the outbreak of World War II. The analogy with today’s circumstances, like all historical analogies, is imperfect. However, this experience is a cautionary tale.

Meanwhile, there are other arguments against reparations. Thus, the legality of the seizure is unclear ASSET Russian. Western governments can also adopt relevant legislation. The United Nations could create a commission with the power to seize these assets, although countries like China would object, imagining they might one day be targeted themselves.

In any case, the seizure of ASSET Russian presence in foreign countries will make other governments think twice before investing abroad. But the bottom line is that demanding reparations would make it more difficult for Russia to ultimately agree to Ukraine’s independence and territorial integrity.

With a hostile Russia on its doorstep, Ukraine will find it harder to be secure, let alone maintain healthy and sustainable economic growth.

Note: Barry Eichengreenprofessor of economics at the University of California, Berkeley, and former policy advisor at the International Monetary Fund. / “Project Syndicate” – Bota.al

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