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Financing Ukraine’s reconstruction: sources and principles

Russia’s full-scale war against Ukraine has become Europe’s biggest challenge of the last 70 years. Undeniably, it has pushed the EU towards change. For more than a year, the EU has been introducing unprecedented external and domestic policies: numerous sanctions packages, frozen and confiscated Russian state and private assets, measures towards strategic energy independence, joint ammunition procurement, and a reinforced fight against Kremlin-backed disinformation.

July 24, 2023 - Vlad Gheorghe - Articles and Commentary

Flags of the EU and Ukraine in front of the European Parliament building in Brussels. Photo: RozochkaIvn / Shutterstock

Contrary to Putin’s intention to invalidate Ukraine’s statehood and remove it from the political map, the war has placed the country at the centre of our attention. It has become evident that Ukraine belongs to our common European family and that we share not only the same values but also the same future. The granting of candidate status to Ukraine on June 23rd 2022 cannot remain a symbolic political gesture. At this point, the EU’s own “tomorrow” largely depends on its approach to addressing the issues in Ukraine and preparing the ground for its integration as a full member. This complex process brings together matters of resources and principles.

Making Russia pay

It is in the strategic interest of the Union and all its member states that Ukraine wins the war and regains its pre-2014 borders, develops a strong market economy, and becomes a resilient democracy where the rule of law is the utmost priority. The path to this transformation lies through the EU accession process that provides the necessary mechanisms, incentives and funds for much-needed democratic reforms. Our work in this regard needs to start immediately.

The key areas of Ukraine’s reconstruction and EU accession have been addressed in a recent study by the European Liberal Forum, which is titled “Designed in Brussels, Made in Ukraine: Future of EU-Ukraine Relations”. This collective volume brings together experts from both the EU and Ukraine to share their insights and policy proposals. As a Member of the European Parliament working on the confiscation of frozen Russian state assets, I myself have contributed with my own vision in this issue. Ukraine’s future reconstruction fund should mainly come from the assets confiscated from those who have been involved in, or have in any way facilitated, Russia’s aggression against Ukraine. Furthermore, it should be made up of the fines and assets that have been confiscated from those who violate the EU’s sanctions against Russia. At the moment, the European Parliament is finalising the directive on the penalties for sanctions evasion, on which I have worked from the budget perspective. It concerns all those under EU sanctions for involvement in the Russian war of aggression, and all those who have attempted to evade the sanctions. These people are accomplices in Putin’s war and participate in the suffering he brings to the peaceful people of Ukraine. Therefore, it is a matter of justice to dedicate the resources confiscated from them to the reconstruction of Ukraine and compensation to the victims. 

 Future accession considerations

At the same time, it is essential that every piece of financial help reaches its legitimate destination and does not get caught up in illegal and untransparent networks. This is where the EU support comes in with the conditionality mechanism and membership plans. While supporting Ukraine financially is an undeniable priority for the EU, any EU funding instruments should be implemented in Ukraine based on the same principles as the EU’s structural funds.

This means that resources should be disbursed based on concrete projects, with pre-set timetables and tangible deliverables, as well as long-term sustainability objectives. The reconstruction projects for private and public infrastructure should be subject to budgetary scrutiny and anti-corruption control. Therefore, the EU should make every possible effort to allow the European Public Prosecutor’s Office (EPPO) to exercise its jurisdiction also over Ukraine. If we have any serious intention of seeing Ukraine as an EU member soon, we need to help it implement the funds in the way that all the EU member states already do.

When it comes to budget-related matters, Ukraine is already being treated as a member state to a certain extent. I personally witnessed a recent historical moment on June 21st, when the President of the European Commission Ursula von der Leyen announced the creation of the “Ukraine Facility” – an impressive and long-awaited initiative that was met with huge applause. Comprised of 50 billion euros over four years, this scheme is based on loans and grants and very much resembles the post-pandemic EU recovery and resilience funds designed for the member states. The recovery of the EU and the recovery of Ukraine thus go hand in hand, and we should make sure that we respect and follow shared budgetary principles. This is why I look very much forward to the Ukraine Facility, as well as the Ukraine Plan which will serve as its basis. Now that the work on the Facility is starting in the European Parliament, I will do my best to make sure it addresses the most urgent reconstruction needs and reform priorities.

Furthermore, following this principle will create the necessary conditions for attracting international investors to Ukraine, even during the war. I participated in the Ukraine Recovery Conference in London – a major international event which brought together 1000 public and private decision-makers, representatives of around 70 states, 33 international organisations, 400 businesses and 130 civil society organisations. What unites all these various stakeholders is the shared goal to make a real and lasting impact on the ground in Ukraine. While the public and private sectors obviously operate through different methods and have different financing sources, both are equally interested in ensuring that their investments are used in a justified and efficient way. This is why the rule of law, good governance, respect for fundamental rights (including minority rights), transparency and accountability are the absolute preconditions for committing the resources in the first place and then effectively implementing them.

To paraphrase President Zelenskyy, every failure to efficiently help Ukraine will be used as a trench by the Russians to weaken both Ukraine and the EU. As a first matter of priority, the EU should start actual accession negotiations with Ukraine. Good governance, financial and environmental due diligence, transparency in public administration, market competition, and facilitated access to justice are the first negotiation chapters to open. A good investment climate guarantees a strong economy in Ukraine, an economy which will be less dependent on foreign aid and more capable of absorbing shocks. Russia can always exploit the economic vulnerability of Ukraine, and the EU’s task is to prevent this. Let us not forget that the EU’s future lies in today’s Ukraine.

Vlad Gheorghe is a Romanian MEP (USR, Renew Europe) and the winner of the 2023 Promoting European Values Award. One of the most outspoken MEPs supporting Ukraine, he proposed a Rebuild Ukraine Fund in order to channel financial aid to Ukraine from confiscated Russian assets, hold the Kremlin accountable, and compensate the victims for their losses.

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