Nancy Qian

The View | Financing Ukraine’s economic recovery will pay off for Europe in the long run

When the war finally ends, Ukraine must begin the much longer and costlier process of reconstruction, and for that it will need the help of its European neighbours

Yet, as was proved when the US helped to rehabilitate Europe after WWII, economic support strengthens regional stability, without which peace would be fleeting

Reading Time:3 minutes

Why you can trust SCMP

A local resident walks past a destroyed building in the Ukrainian village of Horenka on November 19. Photo: Reuters

Nancy Qian

Published: 10:00pm, 23 Nov 2022Updated: 10:51pm, 23 Nov 2022

Nine months after Russia invaded their country, Ukrainians are seizing back their territory and raising hopes of a military victory. But, when it comes to long-term peace and prosperity, a military victory would be only the end of the first phase. The next phase – reconstruction – will be much longer and harder, and it will require continued, extensive economic support from Ukraine’s friends and allies.

The Ukrainian economy is expected to have contracted by a third in 2022. Some 13 million civilians have been displaced and 700,000 Ukrainians (mostly young men) have left the labour force to serve in the armed forces. Factories and homes have been destroyed, and the Kyiv School of Economics estimates that Ukraine’s infrastructure losses total US$115 billion.

Some of these problems will be resolved naturally whenever the war ends, but most will not. Many of the displaced will not have homes or jobs, and the reconstruction of housing, schools and hospitals will bring massive costs. Ukrainian economists estimate that restoring the lost infrastructure will cost at least US$200 billion – and the longer the war lasts, the larger the bill will be.

Given that these amounts are equivalent to Ukraine’s pre-war GDP, Ukrainians cannot be expected to pay for reconstruction on their own. Ukraine’s European neighbours will need to make a major financial commitment to help rebuild its economy. Fortunately, doing so will serve their own interests. Economic instability is a breeding ground for political instability. An unstable Ukraine cannot be a strong regional ally.

American leaders recognised as much in the post-World-War-II era, when the Marshall Plan channelled around US$130 billion (in 2010 dollars) into Europe. As in Ukraine today, infrastructure across the continent (railways, electric utilities, port facilities, roads, bridges and airports) had suffered severe damage from aerial bombardment, and disruptions to agricultural production and transport meant that many people were at high risk of famine.

The Marshall Plan had two aims: European economic recovery and containment of the Soviet Union. Europe’s economic stabilisation was seen as a prerequisite to building stable institutions that would promote income growth and entrench liberal democracy.