Ukraine needs an ambitious new Marshall Plan from Europe

The past 75 years of freedom, peace and prosperity in Western Europe owe much to the American decision to fund the continent’s post-war reconstruction. The Marshall Plan, named after the US Secretary of State who launched it, offered financial assistance – mainly grants – to alleviate the shortage of capital and liquidity that had prevented Europe from developing on its own.

Europe is now in a position to do the same for Ukraine. We must not wait for the country to be at peace: reconstruction must be prepared now. Last week, the Center for Economic Policy Research think tank released an excellent blueprint for such a plan.

Marshall’s achievement was to equip the beneficiaries for wider prosperity than before the war. As the authors of the new plan, prominent Ukrainian, Russian and Western economists write, the goal today should be nothing less: “The cornerstone of Ukraine’s success [is] radically modernize the country.

To achieve this, they uphold six principles. First, prepare Ukraine to qualify for EU membership. Second, manage reconstruction funds and planning through a new EU-sponsored body. Third, leave enough control in Ukraine’s hands. Fourth, encourage inflows of foreign capital and technology. Fifth, use grants rather than loans. And sixth, “build back better” – aligning reconstruction with a zero-carbon economy.

Physically rebuilding what Vladimir Putin destroyed must wait for his war to end. But other aspects of reconstruction don’t need it. Inventories can be drawn up, suppliers pre-selected and contracts signed. Far from the worst fighting, emergency aid is now needed to help the millions who have fled. With the right support, some displaced businesses can continue. All of this can serve as a test of best practices for the larger effort to come.

The first principle is essential: to use reconstruction to prepare Ukraine for EU membership. From now on, the infrastructure must “weave Ukraine into the EU common market”, says the plan. An example is to (re)build railway lines using standard EU gauge. Another is the little-known victory in how Ukrainian and European power operators connected the two power grids on March 16, at record speed in the midst of war.

Reconstruction also means institutional renewal. Adoption of common EU rules can bring a “total break with the Soviet past”, according to the plan. Institutional reconstruction based on EU rules and governance frameworks would kill two birds with one stone: preparing Ukraine for membership and addressing its pre-existing governance challenges. It would also benefit the economy: the prospect that investment disputes will be resolved within an EU legal framework should attract more venture capital.

As unimaginable as it may seem among the current horrors, the plan is right to call for completely green transport infrastructure, housing rebuilt to the highest efficiency standards and devastated cities of Ukraine redesigned for an economy zero carbon.

On the contrary, the authors are not ambitious enough. In some respects, Ukraine can surpass the EU itself. It can manage reconstruction-induced capital inflows to have a more equity-based financial market and avoid overreliance on banks. The plan rightly advocates open contracts for reconstruction; similar transparency should be adopted for property registers and (as for the Nordic countries) taxation.

The plan estimates the reconstruction costs at between 200 and 500 billion euros. That’s probably an underestimate. But the EU, which should bear the brunt of it (and support radical debt relief for Kyiv as for post-war Germany) should not see this as an expense. EU companies will be hired for infrastructure, housing construction, transport, etc., but are expected to transfer skills and technology to Ukrainians.

Beyond that, it is an investment in the values ​​of Europe and its security. It would bring 44 million people firmly into the liberal democratic fold and social market economy – a historic achievement to rival post-Cold War reunification of the continent and the Marshall Plan itself.

George Marshall’s stated purpose in his 1947 speech was “to enable the emergence of political and social conditions in which free institutions can exist.” The unstated goal was to protect European countries from an imperialist dictator in the Kremlin. The plan’s requirement for beneficiaries to remove economic barriers spurred the integration that became the EU. The three results are now in the balance for Ukraine. It is time for the EU to pay it forward.

Mary I. Bruner