Viewpoint: Post-war Ukraine

As long as there is no peace agreement, it is difficult to predict the political risk of post-war Ukraine.

Much will depend on the political stability of the situation the agreement will create. However, we have experience with post-war economics and reconstruction. That experience says that when seed capital is available – as US Marshall aid was available after the second world war – and the money is well spent, the recovery is fast, the political framework stabilises and the donors get their money’s worth in trade and co-operation.

It is to be expected that recovery money will be available, but not at the level of Marshall aid. There will likely be no Wirtschaftswunder in the Ukraine. Still, what money there is will have an effect.

It is to be expected that the first benefactors will be local enterprises that repair infrastructure, whether physical – e.g. roads, bridges, ports, airports – or virtual – e.g. telecommunication, media, electronics. A second wave of construction would be for services – e.g. medical, government, educational, financial. Who would be those partners teaming up with local companies?

The money should be well spent. This is a vitally important point. Pre-war, the only European country rated more corrupt than Ukraine was Russia. This issue is potentially in the way of receiving recovery money and it also hinders Ukraine’s membership in the EU. The recovery would be an enormous opportunity to clean house.

Look for strings being attached to credits. The model here is Greece, a country that hid its problems under false statistics. The EU had the courage not to shrug, kick Greece out of the euro and let the economy sink, but to send an army of financial experts that got the economy back on its feet. It worked wonderfully, but it also caused a lot of pain and anger.

Does Ukraine allow the EU experts to come in and have an effect? Does it tolerate brutal recipes of the ECB hawks? Can it take the pain? Can the EU come up with policies for families of war victims, as well as poor and unemployed Ukrainians to soften that pain?

The EU has adopted a policy of welcoming Ukrainian membership. That doesn’t mean that Ukraine will automatically become a member. The Commission will want it to adopt the EU legal system, which flourishes in a democracy. The Council will want procedures to check on Ukrainian promises and an effort in the field of corruption.

The Russian war hit the Ukrainian currency as hard as the Russian rouble. It will probably make sense to reform the currency by lopping off a few zeroes. This requires that the population trusts the new currency. That is yet another reason why the government budget and thereby inflation should be controlled. In this field, the model will be Spain, Portugal and especially Ireland recovering after the crisis of 2008.

Since ancient Greek colonial times, the area that is now Ukrainian produced vast quantities of agricultural products. If Ukraine gets a grip on corruption, it can realise the full potential of its fertile fields and there will be money available for modernisation.

Importantly, the EU will want to buy Ukrainian gas. Harder to imagine, but not for a Ukrainian, is that the country has potential in the field of high tech. It already played that role in the times of Soviet president Brezhnev, of Ukrainian descent and it still has the experience and capacity to take up that role again.

Reconstruction aid, the alternative to budget money, should be as generous as possible, taking into account that all EU member-states as well as the US have an interest in a stable Ukrainian economy, for political as well as economic reasons. The sooner Ukraine is ready to adopt the euro, the better for the fight against corruption and inflation. Can it be done?

Pension funds should follow developments regularly, paying attention to key factors, such as recovery aid, corruption fighting, aid for the poor and unemployed and the government budget. If those developments turn out positive, the Ukraine renaissance will offer countless investment opportunities.