The West gives good (Berlin) conference

It is that time of year again - time, unfortunately, for the annual Ukraine recovery conference. After Lugano in 22’, London in 23’, it is Berlin in June 2024.

There has been lots of talk about recovery and reconstruction in Ukraine, but it feels a bit like this is putting the cart before the horse. If there is no victory in the war, there will be no recovery and reconstruction. And unfortunately the West is still not funding (or arming) Ukraine to actually win.

Partly the drive to run these kind of conferences reflects the experiences after the Second Gulf War, and the fact that the US totally failed to think/plan for recovery and reconstruction in Iraq, hence the subsequent disaster. But back in 2003 the US piled max resources into the win, and achieved that in short shrift, a matter of months. But failure to think about recovery and reconstruction eventually cost the US dear in terms of blood and treasure.

It feels like this time around it is the other way around. This time around the West is simply not funding Ukraine sufficiently to win the war, quickly enough, while being distracted by the recovery and reconstruction story. This should now be obvious (a fact) two years plus into the war. As I have argued elsewhere, the numbers simply do not add up - the West has spent $100 billion a year for the past two years just keeping Ukraine in the fight. That sounds a lot, but with Russia increasing defence spending now to $140 billion a year, the Western give to Ukraine is simply not enough to win. And assuming a roughly 50-50 split military to budget/humanitarian support, it implies Ukraine is being outspent on the battlefield by Russia in multiples. Ukrainian innovation and resolve can make up for some of the deficit but not enough. I would argue that to win, we should increase financial support to Ukraine from $100 bn a year to nearer to $150bn, that is increasing from roughly $8.5 bn a month on average since Feb 22, to $12.5bn a month - and remember funding dropped to $3.7bn a month between October 2023 and February 2024 when Ukraine was put on the backfoot In Avdiivka and now Kharkhiv. But the political reality in the West is that this is a really tough political ask - and especially with a Trump win in elections in November likely to cut Western support to Ukraine by roughly 40%, so down to $60 billion a year. Will Europe be able to fund that $40bn gap, and then add the additional $50bn a year? I think not given European elections looming, Orban, Fico, et al.

We all just need to be honest, realistic, and understand that if a Ukrainian victory is absolutely critical for Europe and the Western alliance - it is - then the only realistic option is to tap the $330 billion in immobilised Russian CBR assets in Western juridications, in full. Only by tapping the full amount can be insure a speedy Ukrainian victory.

I still don’t get how some of our politicians think here, they seem to think it is ok to spend Western tax payers money in effect to defend Russian tax payers money stuck in Western juridications. It is simple as that. Russian tax payers rights are being put ahead of the rights and interests of their own tax payers. That should be a scandal in all Western democracies. How does that work?

But it is the usual obfuscation by bureaucrats at the ECB, and Europe in general, head in the sand thinking. No long term strategic thinking at least in terms of national security.

I think the Biden administration realised the likely spending shortfall looming, reflected in the delay in getting the $61bn funding package over the line, and then concerns over a Trump win in November, and signed up to stop gap efforts to increase funding from interest on the immobilised Russian assets. Hence now the G7 focus on trying to securitise the interest flow from immobilised Russian assets (one off give of $50bn perhaps). This helps to a degree, but does not really touch the sides still in terms of Ukraine’s overall funding needs. And I worry about its complexity and actually European bureaucrats are just going along with it to delay, and buy time to avoid doing what they should do which is seize the underlying assets and allocate them to Ukraine. We should on concentrate on moving mountains to get Ukraine access to the $330 billion in underlying assets, and not be distracted by these half (one seventh) measures.

So for me Berlin should hold fire in talk about recovery and reconstruction and focus on what it will take to finance Ukraine to win the war, and getting a decision to allocate Ukraine the full nine yards ($330 billion) in CBR assets therein. Anything else is simply fiddling while Rome, actually Kyiv and Kharkhiv burn. That is the harsh reality and the ECB, Lagarde, et al need to wake up quick to this fact.

Still, it’s remarkable that after two years plus of war, and numerous recovery and reconstruction conferences there is still no institutional structure created to manage/fund the war financing and reconstruction. I long argued tor an Agency for Ukrainian Recovery and Accession to the EU (AURA). This could help manage the eventually frozen and seized Russian CBR assets - they could be invested innovatively to generate higher returns - 10% a year, to give Ukraine an annual $30 billion funding source. But zero progress really from the G7 in terms of the post war institutional framework. What have our leaders been doing? This agency could then help manage the recovery and reconstruction in a sovereign wealth style structure, jointly owned and managed by the G7 and Ukraine, with eventual ownership fully reverting to Ukraine once EU accession happens. It could manage sovereign assets, borrow for recovery, act as a partner for investment, and act to programme, manage, provide oversight for recovery and reconstruction, and act as a clarion for reform and champion for investors. Sounds so obvious. But two years plus in, zero progress, reflecting a lack of leadership and lack of joined up thinking from Western allies around these core issue. But the West gives good conference.