The cost of reconstruction is uncertain because the course of the war is uncertain. Ukraine’s pre-war GDP was about $ 150 billion (120 120 billion). Given the capital-to-production ratio of 3, and assuming that one-third of the capital stock will be destroyed, we are again talking about $ 150 billion. As always, alternatives offer alternative scenarios, but the $ 150 billion seems like a good starting point. This is not an impossible amount of donation to commit donors. It is one-sixth the size of the NextGenerationEU program agreed to by EU states in July 2020. It is one-twelfth the size of the US Rescue Plan signed by Joe Biden in March 2021. However, it seems wrong to ask the US and Europe to repair what Russia has broken. It is therefore tempting to suggest that the reconstruction of Ukraine should be financed by the garnish of Russian assets. At $ 284 billion, the Bank of Russia’s frozen reserves would certainly fit. It is true that there is a moral case for reparations: Russia has started an unprovoked war and has almost certainly committed war crimes during its persecution. There is also a deterrent argument. As Volodymyr Zelenskiy put it in Davos this year: “If the attacker loses everything, then he certainly lacks the motivation to start a war.” Security guarantees are both vital to the economic recovery and to the security of the people of Ukraine. Formal aid cannot finance the economy forever. private investment will be required. But foreign investment will not flow in if security is uncertain. Indeed, 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 is nuclear-armed and Ukraine is not, the strategic balance will shift. A security guarantee from the US and the EU could counteract this Russian advantage, but the West is reluctant – not without reason – to take the risks. The only viable solution is a Russia reconciled with Ukraine’s political independence and territorial integrity. And reparations are the last thing that is needed to achieve this. They would mean additional difficulties for a Russian population already experiencing difficulties. With the economy shrinking by 10-20% this year, it is not as if Russia is coming out of a quandary. Of course, going too easily with Russia risks being appeased. And under no circumstances should Russian President Vladimir Putin be rewarded for his aggression. But there is the opposite risk. Russia must recognize Ukraine’s political and territorial integrity. His further punishment during the peace negotiations will not facilitate it. We want future Russian governments to respect international rules. Invoking these rules to extract every pound of flesh will not make it more likely to achieve this goal. There is an obvious analogy with German reparations after the First World War and the war guilt provision of the Treaty of Versailles. Rightly or wrongly, the Russians now, like the Germans then, do not consider themselves solely responsible for the war. The treaty’s war guilt clause gave nationalist German politicians a grievance to campaign. The financial demands of the winners gave cover to the German governments to ignore the provisions of the disarmament treaty and the ban on establishing a customs union with Austria. Compensation has also complicated the task of stabilizing and restructuring the international system. John Maynard Keynes expected all this and much more in his prophetic Economic Consequences of Peace. This indictment of post-World War I compensation should not be exaggerated. The reparations alone did not cause the Great Recession, and the German recession alone did not lead to Hitler and World War II. The analogy with current conditions, like all historical analogies, is incomplete. However, this experience is a cautionary tale. There are still other arguments against compensation. The legality of the seizure of frozen Russian assets is unclear. Western governments could pass legislation, although they could then be seen as bending the law in their favor. The United Nations could set up a commission with the power to seize these assets, although countries like China, imagining they might one day be targeted, would oppose the move. Either way, the seizure of Russia’s foreign assets will make other governments think twice before investing abroad. The point, however, is that the demand for compensation would make it more difficult to imagine a Russia reconciled with Ukraine’s independence and territorial integrity. With a hostile Russia on its doorstep, it will be more difficult for Ukraine to remain secure, much less to maintain a healthy and stable economic growth. Barry Eichengreen is a professor of economics at the University of California, Berkeley and a former senior policy adviser at the IMF. © Project Syndicate
