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Europe is struggling to raise cash for Ukraine’s war effort. Countries burdened with its debt would not like to trouble themselves. And the European Commission is still trying to get full support for its proposal to use frozen Russian assets for loans worth up to €210bn. The danger, however, is that inaction will be far more costly.
Think of this as a purely financial question for a moment. On the one hand, Europe is committed to funding Ukraine’s war effort for, say, four years, whether through one of a variety of schemes taking advantage of frozen Russian assets or, in a pinch, funding by member states themselves. Estimates of how much it will cost vary: IMF calculates $136bn funding gap By 2029 while a report from the consultancy Korisk and the Norwegian Institute of International Affairs Estimates range between €522bn and €838bn.
This will bear fruit only if Ukraine can put pressure on Russia for a proper ceasefire. President Vladimir Putin would hardly be in a position to demand the return of Russia’s €210 billion of frozen assets, meaning some or all of the initial outlay would be recovered. And, while Europe has good reasons to increase its defense spending anyway, Putin will be less likely to pose a further military threat.
Now consider the alternative path, where Europe fails to act unitedly. Ukraine would then be more likely to surrender to a ceasefire on Russia’s terms, allowing Putin to withdraw from existing sanctions and perhaps even return to the G8. Europe, facing a wealthy and adventurous Russia, will be under enormous pressure to spend heavily on rapidly strengthening its security.
The cost of this scenario can also vary widely. Korisch believes a Russian victory would cost Europe between €1.2tn and €1.6tn over four years, including increased defense spending and a potential influx of refugees. During the Cold War, Britain’s defense spending reached 7.6 percent of GDP in 1955–56. Bringing Europe to that level from the current 1.6 percent would require additional spending of more than $1 trillion per year.
These are simplified results, and there are others that lie somewhere in between. Only then can Russia gain the upper hand and return to peaceful and beneficial relations with its neighbors. But it would be unwise for the EU to bet on that. It’s also possible that Ukraine could be short on cash, struggle for a few more years, and still fail to turn a profit.
But even assigning a non-zero probability to these outcomes, funding Ukraine’s war effort is a better return on Europe’s money than preventing a victorious Russia. Of course, war goes beyond economic decisions, but as far as financial matters are concerned, the logical path is quite clear.
camilla.palladino@ft.com
