On the eve of a major Ukraine reconstruction conference, the president of the European Investment Bank says that a failure to reinforce the country’s economy now risks undermining the war effort and making subsequent support even costlier.
“Some ministers in the European Union are hiding behind the argument that in times of war, you do not continue to finance things,” Werner Hoyer, head of EIB, told Devex this week. “And this I think is dead wrong. I'm of the firm opinion that the [time to provide] support for the running of the Ukrainian economy is now.”
Speaking on the margins of the Finance in Common summit of public development banks in Abidjan, Côte d’Ivoire, Hoyer said that Europe must urgently support Ukraine not just militarily but also economically.
“When [Ukrainian Finance Minister Sergii] Marchenko was in Washington last week, he gave a very, very impressive presentation on the functioning of the Ukrainian economy right now, and Jesus Christ, this is amazing,” Hoyer said. “I mean, number one: they're probably better at digitalization than we are in Germany or in the U.K. or in Belgium. The second thing: In the liberated parts or free parts of Ukraine the economy is functioning. And it is not true that it’s all corruption — that is a feature that I do not deny, I've been there for decades. But no, all in all, it’s functioning very well.”
Hoyer added that “if we say we postpone [financial support] until we have seen a ceasefire or peace agreement, then it's going to be much more expensive or we are going to be asked to rebuild Russia but not Ukraine.”
An International Expert Conference on the Recovery, Reconstruction and Modernisation of Ukraine will take place Tuesday in Berlin, where the European Commission may announce further detail on how it intends to help finance the reconstruction of the country, following the full-scale Russian invasion in late February.
Last month, the commission said that it, together with member states and financial institutions such as EIB and the European Bank for Reconstruction and Development, has “mobilized” more than €19 billion for Ukraine through macro-financial assistance, budget support, and humanitarian aid. However, Ukrainian officials warned earlier this month that money needs to be disbursed more quickly in order to keep the country’s economy afloat.
Hoyer told Devex that by providing two financing packages — €668 million fully disbursed in March and €1.59 billion in July, of which €1.05 billion had been disbursed by this month — EIB “put the European Commission and [budget] commissioner [Johannes] Hahn under quite considerable pressure” to maintain the bank’s involvement by showing that EIB was helping Ukrainians to fix infrastructure and purchase medical supplies and fuel.
“At the end of the day, it worked, and it worked with good projects,” Hoyer said. “We are now in the situation that Hahn is reaching his limits, so we must find other ways to finance these things. And the question of urgency is there.”
The war has also placed strain on the EU’s substantial aid and development assistance budgets, amid growing needs in the rest of the world as well.
With emergency budget reserves tapped out, the European commissioner responsible for humanitarian aid, Janez Lenarčič, has called for joint borrowing by EU states to finance the commission’s external spending. Member states took the historic step in 2020 with the €750 billion NextGen EU plan in response to the COVID-19 pandemic, though at the time commission proposals to also boost the commission’s aid and development budgets were deleted by national leaders.
When it comes to the prospect of more joint borrowing now to support commission spending, this time outside the EU, Hoyer is not optimistic.
“If they can make it, it's fine,” the German economist said. “I have some doubts, because the pressures and confines within which the member states of the European Union must act now will make it difficult to say we go for a practical expansion of the budget. Good luck. So I think we must bring the creativity and financial expertise of our institution in together with maybe national institutions to raise money and multiply money [in] other ways.”
Editor’s note: The reporter’s travel to Abidjan was supported by EIB. Devex maintains full editorial control over the content.