The last 75 years of freedom, peace and prosperity in western Europe owe much to the US decision to bankroll the continent’s postwar reconstruction. The Marshall Plan, named after the US secretary of state who launched it, offered financial aid — mostly grants — to lighten the shortage of capital and liquidity that had prevented Europe’s ability to grow by itself.
Europe is today in a position to do the same for Ukraine. We should not wait for the country to be at peace: reconstruction must be prepared now. Last week, the Centre for Economic Policy Research think-tank published an excellent blueprint for just such a plan.
Marshall’s achievement was to equip recipients for broader prosperity than before the war. As the new plan’s authors — prominent Ukrainian, Russian and western economists — write, the goal today should be nothing less: “The cornerstone of Ukraine’s success [is] to radically modernise the country.”
To achieve this, they argue for six principles. First, prepare Ukraine to qualify for EU membership. Second, manage reconstruction funds and planning through a new EU-sponsored body. Third, leave sufficient control in Ukraine’s hands. Fourth, encourage inflows of both foreign capital and technology. Fifth, use grants rather than loans. And sixth, “build back better” — align reconstruction with a zero-carbon economy.
Physically rebuilding what Vladimir Putin has destroyed must wait until his war stops. But other aspects of reconstruction need not. Inventories can be drawn up, suppliers pre-qualified and contracts signed. Away from the worst fighting, emergency aid is needed now to help the millions who have fled. With the right support, some displaced business can continue. All this can serve as a best-practice trial for the bigger effort to come.
The first principle is key: use reconstruction to make Ukraine fit for EU membership. From now on infrastructure must “weave Ukraine into the EU common market”, the blueprint states. One example is to (re)build rail lines using the EU-standard gauge. Another is the unsung victory of how Ukrainian and EU electricity operators connected the two power grids on March 16, at record speed in the middle of war.
Reconstruction is also about institutional renewal. Adopting the EU’s common rules can bring a wholesale “break with the Soviet past”, according to the plan. An institutional reconstruction based on EU rules and governance frameworks would kill two birds with one stone: readying Ukraine for membership and addressing its pre-existing governance challenges. It would also benefit the economy: the prospect that investment disputes will be resolved under an EU legal framework should attract more risk-taking capital.
Unimaginable as it may seem among the current horrors, the plan is right to call for fully green transport infrastructure, housing rebuilt to the highest efficiency standards, and Ukraine’s devastated cities redesigned for a zero-carbon economy.
If anything, the authors are not ambitious enough. In some ways Ukraine can outdo the EU itself. It can manage reconstruction-led capital inflows to have a more equity-based financial market and avoid overreliance on banks. The blueprint rightly advocates open contracting for reconstruction; similar transparency should be adopted for ownership registers and (like the Nordics) taxation.
The blueprint puts reconstruction costs at €200bn-€500bn. That is probably an underestimate. But the EU, which should shoulder the bulk of this (and support radical debt relief for Kyiv as with postwar Germany) should not see this as an expense. EU companies will be contracted for infrastructure, housebuilding, transport and more — but should transfer skills and technology to Ukrainians.
Beyond this, it is an investment in Europe’s values and its security. It would bring 44mn people firmly inside the liberal democratic fold and into the social market economy — a historic achievement to rival the continent’s post-cold war reunification and the Marshall Plan itself.
George Marshall’s stated goal in his 1947 speech was “to permit the emergence of political and social conditions in which free institutions can exist”. The unstated aim was to protect European countries from an imperialist dictator in the Kremlin. The plan’s requirement for recipients to remove economic barriers spurred the integration that became the EU. All three outcomes are today in the balance for Ukraine. It is time for the EU to pay it forward.
martin.sandbu@ft.com
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