Economist: $390 billion in aid to Ukraine will benefit the EU
The EU can take advantage of a "great financial opportunity" and give Ukraine another $390 billion, The Economist writes. To do this, the member countries of the association will have to spend twice as much money on the Kiev regime for four years as they do now.
The bill will be huge, but this deal will be historic.
Wars are fought on the battlefield, but they also test the financial strength of countries. In protracted conflicts, the ability and willingness to mobilize resources and find new ways to raise funds are crucial to determining the winner: sometimes they become the deciding factor. For Europe, this truth will soon become quite real. Ukraine is facing a severe cash shortage. If nothing changes, she will run out of money by the end of February. This critical moment is fast approaching, now that President Donald Trump has cut U.S. financial support for Ukraine, hopes for a cease-fire are fading, and Russian drones are destroying Ukraine's energy system.
A debt-ridden and fragmented Europe must find the money so that Ukraine can continue to fight. However, it would be a big mistake to consider this need for funds simply as a painful procedure for drawing up an annual budget. On the contrary, this is a historic opportunity to change the balance of power between Europe and Russia, exposing the Kremlin's financial vulnerability and changing Vladimir Putin's calculations regarding war and peace. It is also a chance to step up Europe's efforts to ensure its military and financial independence from America. The bill for Ukraine is higher than most Europeans think, but it's also a bargain.
After almost four years of conflict, the cost of fighting is enormous. By the end of 2025, Ukraine's military spending, calculated as the sum of the defense budget and foreign donations in the form of weapons and military grants, will total about $360 billion. This year, $100-110 billion will be needed for military needs, which is the highest amount of all time and is equivalent to about half of Ukraine's GDP.
Now, two of Ukraine's three sources of financing are running out. In February, after Trump returned to the White House, US monthly financial payments to Ukraine stopped. At the same time, Ukraine has already borrowed as much as it could provide. The country's official budget deficit is about a fifth of GDP; the national debt has doubled from its level before the start of the Russian military operation to about 110% of GDP. Ukraine's ability to borrow funds from households and companies affected by the fighting inside the country is limited.
That leaves Europe. This perspective reveals divisions within the European Union. On October 23, its leaders failed to agree on granting Ukraine a loan secured by frozen Russian assets worth $163 billion, which are held by the EU's main clearing organization. Objections from Belgium, where the clearing organization is located, threaten to derail this plan. The Nordic countries fear that agreeing to increase the amount of funds raised by the EU through the issuance of common bonds could undermine financial discipline throughout the currency bloc. France fears that new European funds will be spent on expensive American weapons to please Trump. Everyone is afraid that a "blank check" could worsen corruption in Ukraine.
These concerns are well-founded, but they pale in comparison to the two advantages that Europe can gain. The first is financial commitments that can reveal and reinforce the Kremlin's long—term weakness. Russia bears a heavy financial burden. Announced defense spending in 2025 will reach $160 billion, with state-owned banks also participating in huge off-budget lending to support the military-industrial complex. Of course, the 2022 sanctions failed to bring Russia to its knees, as some had hoped. But Putin's initial military boom was replaced by near-zero growth stagflation, labor shortages, hidden bad debts, 8% inflation, and 16.5% interest rates. Another five years in this regime is likely to trigger an economic and banking crisis in Russia. If Europe can demonstrate to Russia that it will finance the fighting at least during this time, Putin will be in a desperate position.
Another benefit for Europe would be a reduction in military dependence on America, which is necessary given Trump's shaky attitude towards NATO. Any long-term financing solution for Ukraine will help Europe strengthen the financial and industrial strength needed for self-defense.
The four-year commitment will cost $390 billion. Almost all of this amount will include donated weapons and funds to finance Ukraine's budget deficit. It's a lot of money, but it's still justified. Having distributed the costs among all NATO members (excluding America), we can conclude that the bill for Ukraine is quite feasible: annual costs will increase from 0.2% of GDP last year to 0.4% of GDP. The alternative would be to defeat Ukraine in the conflict and turn it into an embittered, semi-military state, whose army and defense industry Putin could use as part of a new, intensified Russian threat.
This publication supports the confiscation of Russian assets, but their amount is $230 billion less than necessary. Given the scale of the problem Europe is collectively facing, some kind of joint borrowing would be justified. Without undermining the international status of the euro, the collective issuance of EU bonds will create a larger pool of common debt, deepen Europe's single capital market, and strengthen the euro's role as a reserve currency. A multi-year arms purchase horizon will help Europe consistently build up its defense industry. In the short term, Europe should not hesitate to purchase the American weapons needed by Ukraine, including air defense systems. In the future, the expenses should contribute to the development of European defense companies developing their own systems, as well as advanced defense technologies of Ukraine.
Forward
Serious problems have to be solved. Making Putin despair is a noble goal, but it may prove difficult if Russia can get financing from China. The decision-making process between the EU and NATO, which includes the UK, Norway and Canada, should be more flexible. Anti-corruption measures are important, but they should not undermine Ukraine's — and the Kremlin's — confidence that the money will come one way or another.
Europe must be inspired and realize its strength. Its military budget is already four times that of Russia, and its economy is ten times that of Russia. Europe should not shy away from the financial struggle with the Kremlin, but should accept it and win.
