A 486 Billion Dollar Investment

Economic Peacebuilding, Donor Coordination and the European Union’s Role in Ukraine’s Reconstruction

Russia’s war of aggression against Ukraine has caused untold human suffering. It has also wrought havoc on the physical, social, and economic infrastructure of Ukraine. Rebuilding the war-torn economy to the point where it can be prosperous and benefit all Ukrainians equitably will be a herculean task. Recent estimates put the financing needs for reconstruction at a staggering 486 billion dollars (USD). Undeterred, the European Union (EU or Union hereafter) has risen to the challenge and taken a leading role in planning for the post-war reconstruction of Ukraine, a reconstruction that will take place in the context of EU accession.

Above all, the Ukrainian economy must deliver prosperity for the people of Ukraine and it is they who should have the leading role in its revitalization. But if the EU can provide guidance throughout the process, it will not only be an opportunity to integrate economic peacebuilding into the existing crisis management architecture. It will also show that the EU can take on the role of central coordinator in post-conflict situations where the United Nations is largely absent. Ukraine thus offers the EU the opportunity to prove that it can be the global peacebuilding actor that it aspires to become.

As one of the world’s premier economic and trade powers, the EU is well-positioned to engage in economic peacebuilding. Nevertheless, much is currently uncertain. The circumstances of Ukraine’s reconstruction will vary greatly depending on how much longer Russia’s aggression continues, whether Ukraine can liberate all or some of its territory from occupation, and whether Russia can be compelled to pay reparations for its aggression. These insecurities notwithstanding, observers have highlighted that reconstruction is an opportunity to build a greener economy that works for all Ukrainians (see for example here and here). This raises the question of how capable the EU is to conduct economic peacebuilding and how it is doing so in Ukraine. Whether and how the EU can ensure stability abroad through peacebuilding and crisis management will be decisive in determining how security at home can be secured in the long term.

To answer this question, this contribution will first examine how economic reconstruction fits into the larger framework of EU crisis management and how it is operationalized in Ukraine. It will then discuss how the EU coordinates with other peacebuilding actors in Ukraine before ending with some reflections on how the reconstruction of Ukraine may shape the Union’s crisis management capabilities in the future.

A sustainable, climate neutral and inclusive economy

The EU is no stranger to economic peacebuilding. The term as understood here refers to the part of post-conflict reconstruction concerned with putting the national economy and social infrastructure back on their feet. The 2016 EU Global Strategy for the EU Common Foreign and Security Policy recognized the need to pursue crisis management in an integrated manner, ensuring stability and economic resilience. It also argued that a consistent and credible enlargement policy was vital to ensure stability in Europe. The 2017 European Consensus on Development reaffirmed the link between development and peace. Ukraine may present an opportunity to put into practice the calls of the Global Strategy and European Consensus for economic peacebuilding as a part of EU crisis management.

For now, the efforts of the Union towards economic reconstruction in Ukraine are promising. The Ukraine Facility Regulation, adopted on 29 February 2024, set out among its objectives to ‘address the social, economic and environmental consequences of Russia’s war of aggression’ (Article 3(1)(a)) and to foster ‘the transition to a sustainable, climate neutral and inclusive economy’ (Article 3(2)(c)). The idea of inclusiveness is expanded upon in the preamble which refers to the need to fight poverty, create quality employment, ensure equal access, and protect vulnerable groups (paragraph 42). This runs in parallel to the accession of Ukraine to the EU (Article 3(1)(c) and (2)(f)), which will itself also require significant economic reforms. The Facility shows that the EU is aware of the importance of not only fostering a strong Ukrainian economy, but one that also works for all Ukrainians and is sustainable. The important efforts of EU Member States in pledging support for Ukraine’s recovery, such as France and Germany, also bear mentioning.

An inclusive approach to crisis management is likely to strengthen the Union’s credibility as a global peacebuilding actor. Successfully revitalizing Ukraine’s economy would give a strong impetus to strengthen enthusiasm within the EU for economic peacebuilding. The EU would do well to build its capacities in this area since economic aspects are increasingly becoming an integral part of international peacebuilding strategy (see for example here and here). Given its vast economic and trade power, the Union could be uniquely suited to bringing economic stability to conflict-affected regions. Beyond the immediate context of Ukraine, increasing its capacity for inclusive, multidimensional peacebuilding would strengthen the EU’s position as a global, rather than regional, peacebuilding actor and partner to the United Nations, a role which it has been at least willing, if not even eager, to claim (see here and the Global Strategy, p. 43). In order to credibly fill this role, however, the EU also needs to be able to coordinate the many actors involved in any given peacebuilding operation.

One amongst many

Given that EU accession is among the main foreign policy priorities of Ukraine, it appears sensible that the EU should take the lead in coordinating the reconstruction. Even more so since the UN is not going to be able to play the role of central coordinating institution for the foreseeable future due to Moscow’s veto in the Security Council. However, coordination between peacebuilding actors has been a challenge in many conflicts and has been identified as one of the main growing pains of EU crisis management. Coordination was a major obstacle to effective peacebuilding in both Bosnia and Herzegovina and Kosovo, two of the earliest civilian missions the EU was involved in. Different priorities and a lack of communication between donors led to projects undercutting each other and funds being used inefficiently. Ukraine, where a plethora of actors, including the G7 countries, Organisation for Economic Co-operation and Development (OECD), World Bank, International Monetary Fund (IMF), and others, are already planning their role in post-war reconstruction, will show whether the EU has learned from its past experiences.

Coordination, like reconstruction, evolves in stages. At the outset, there needs to be an assessment of the needs of Ukraine. What has to be rebuilt in which order? The Rapid Damage and Needs Assessment (RDNA) is a prime example of effective assessment coordination. It is authored jointly by the World Bank, EU, United Nations, and Ukrainian Government and revised periodically. As mentioned previously, the most recent assessment (RDNA3) dated February 2024 has estimated the total cost of reconstruction at USD 486 billion. RDNA3 has emphasized that the main responsibility for leading and prioritizing reconstruction efforts lies with the Government of Ukraine, highlighting the importance of local ownership—i.e. the involvement and consultation of Ukraine and its people. However, the Government acts in coordination with its international partners. As such, assessment has benefitted from the input of the IMF, World Bank, and others. Crucially, RDNA3 emphasizes the ‘strong role’ (p. 26) of the EU in the reconstruction of Ukraine and notes the importance of supporting Ukraine on its accession path. Fostering a common assessment of Ukraine’s needs is an important first step to successful coordination.

But coordinated assessment does not render coordinated planning obsolete. After all, the devil is usually in the details and therefore operational and strategic planning also requires a significant level of coordination. To this end, the G7 began developing a forum for long term coordination last year in the Multi-Agency Donor Coordination Platform for Ukraine (the Platform). The Platform works to ‘coordinate economic assistance in line with Ukraine’s reform ambitions, in line with the conditions for financing and structural support of the major donors, and in line with its European path.’ In order to achieve this, the Platform groups together the G7, EU, and Ukraine, as well as several other important donor countries (currently South Korea, the Netherlands, Norway, and Sweden) in a Steering Committee, which discusses the financing needs of Ukraine and how international actors can support them (e.g. here). Several international financial institutions (World Bank, IMF, European Bank for Reconstruction and Development, OECD, European Investment Bank, and Council of Europe Development Bank) as well as six more countries participate as observers. The secretariat is hosted jointly by the EU and Ukraine in Brussels and Kyiv, highlighting the shared European and local character of the Platform. The Platform held its first Ministerial Meeting on 11 June 2024 at the margins of the Berlin Ukraine Recovery Conference.

The Platform presents a valuable forum for exchange between the EU and its partners. However, some aspects of it may become problematic once reconstruction moves from planning to actual implementation. For one, while the international financial institutions’ inclusion in the planning process is laudable, they remain somewhat on the side-lines. Currently, as observers, they seem to play a relatively minor role compared to the Steering Committee. It remains to be seen how committed they will be to putting into practice an agenda that they may not necessarily feel involved in. Furthermore, in order to be truly inclusive, local ownership will have to be extended beyond the national government to communities on the ground. This may raise thorny issues regarding whose voices are heard and count as ‘local’. Addressing concerns of local ownership is of particular concern for the EU given its historically patchy record of genuine engagement with local actors, for example during the aforementioned missions in Bosnia and Herzegovina as well as Kosovo. Another possible obstacle may be the lack of formal decisions by the Platform. This is not to say that formalism is necessarily a recipe for success in international politics. But forging clear plans that all actors agree to now may prevent uncertainty and disagreement in the future and contribute to a stable environment for private investors as an added benefit. Even without a formalized process, however, the Platform is an opportunity for the EU to take co-ownership of the reconstruction process. It is remarkable that the Union is the only full member of the Platform that is not a State, clearly showing its importance. Coordination may benefit further if the EU was also involved in the G7 decision-making process at an early stage. Be that as it may, the fact that planning is already being coordinated at present is cause for cautious optimism that lessons from previous missions have been heeded. How well the EU can in turn apply the best practices developed here to peacebuilding operations that do not take place in an accession context, is, however, an open question.

A global and holistic peacebuilding actor

The reconstruction of Ukraine is an opportunity for the EU to show that it can take on a leadership role in peacebuilding missions that require more than a pure military or security response. The EU also now has a chance to further improve its crisis management capacities for economic peacebuilding and international coordination. It remains to be seen how well the coordination with the EU’s partners will pan out once reconstruction starts in earnest. But early efforts like the RDNA and the Platform show promise. If done right, the—at minimum—USD 486 billion spent on reconstruction will be a worthwhile investment not only in a sustainable and inclusive Ukrainian economy, but also a stronger and better EU crisis management architecture.