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As Russian troops and tanks poured across his country’s borders on the night of February 23, 2022, Volodymyr Zelenskyy delivered a now-famous video address to the Russian people. “War is a great misfortune,” Ukraine’s leader said. “And this misfortune has a high price.”
Zelenskyy added that this statement is true in “in every sense”: for in addition to the death, pain, and immense misery they typically inflict, wars also exact a severe economic toll.
But just how severe, exactly?
In Ukraine’s case, the most authoritative recent assessment was published in February this year, when the United Nations, the European Commission, the World Bank, and the Kyiv government jointly estimated that the country’s reconstruction and recovery will cost €506 billion over the next decade.
The figure is colossal: It is nearly three times Ukraine’s annual GDP and, in today’s money, almost four times larger than the US Marshall Plan, which helped rebuild Europe after World War Two.
It is also, almost certainly, a significant underestimate. The cited amount only assesses damage up until December 31, 2024, and thus doesn’t include the massive destruction unleashed by the Kremlin’s war machine on the country’s civilian infrastructure over the past year.
Moreover, developments this week pertaining to another devastating war – namely, the Israel-Hamas conflict in Gaza, which is now subject to a fragile truce – offer a disturbing omen about Ukraine’s own mounting reconstruction costs.
On Tuesday, the UN estimated that rebuilding the shattered Palestinian enclave will cost “around $70 billion”: roughly a third more than the $53 billion reported back in February.
Even more worryingly – and despite UN claims of “very good indications” of donor support – many experts appear resigned to the fact that Gaza won’t receive the funds it needs to properly rebuild.
“We know that, practically, nobody will give us $70 billion,” said Mamoun Besaiso, a senior advisor on Gaza to the EU and the UN. He added that aid agencies are currently seeking just $20 billion to fund “basic services” for the territory’s two million people, such as food, health, and education.
“Over the last year, I’ve engaged with donors,” Besaiso noted. “They said: ‘Without a sustainable political solution, we are not going to invest $1 in Gaza.’ It doesn’t make sense that Gaza goes into a cycle of construction and destruction forever.”
A different kind of war
Is Ukraine doomed to suffer a similar fate? Or could it receive the funds it needs for its economy to recover and, potentially, thrive?
To be sure, there are some reasons for hope.
For one thing, the sheer intensity of Gaza’s physical destruction means it is genuinely unclear whether it can actually be rebuilt. One recent study estimated it could take four decades just to clear the rubble from the territory’s smashed homes, schools, and hospitals; another UN report released last year found Gaza’s economy could take 350 years to return to its pre-war output. No comparable concerns – which, understandably, spook potential donors – arise in Ukraine’s case.
For another, the private sector will likely play a far greater role in Ukraine’s reconstruction. Estimates by the World Bank and others suggest private firms could finance up to a third of the country’s reconstruction costs, thereby partially alleviating the fiscal concerns of EU governments, many of which are currently running sky-high deficits. By contrast, Gaza’s dire economic fortunes and general instability mean public money will have to cover virtually all of its reconstruction.
Finally, and perhaps most importantly, there is the option of using frozen Russian sovereign assets. In a sense, this is already happening: A loan agreed by the G7 group of rich Western countries last year uses profits generated by the assets to fund a €45 billion loan to Kyiv.
Now, however, the EU is aiming to harness the underlying assets themselves to fund a “reparation loan” to Ukraine of up to €185 billion: money which, together with private-sector cash, could cover the lion’s share of Ukraine’s reconstruction.
“There is no certainty that Ukraine will get enough money for its reconstruction,” said Svitlana Taran, a policy analyst at the European Policy Centre. “This is why the decision about using the Russian assets for the reparation loan is becoming more urgent.”
Tyson Barker, a non-resident senior fellow with the Atlantic Council’s Europe Centre, noted that using the assets is key to avoiding having to ask reluctant EU citizens to cover Ukraine’s financial needs.
“I don’t think that European citizens are ready to pay the cost to cover these holes,” he said on a recent podcast by Bruegel, an EU policy think tank. “Russia has to bear the burden of that cost.”
No silver (Russian) bullet
Unfortunately, it is unlikely this will be enough.
First, even if the loan were used to pay for Ukraine’s reconstruction and the private sector were to fund a third of this effort, this would still leave Kyiv facing financing needs of at least €170 billion – which is roughly equivalent to the total amount of humanitarian, military, and economic aid the EU has given Kyiv since the start of the war.
Second, it is unclear whether the loan will even go ahead. Despite weeks of intense lobbying, the European Commission has still failed to persuade Belgium – which holds most of the Russian assets that were frozen shortly after Moscow’s full-scale invasion – that the scheme is legal and won’t spark a mass exodus of foreign capital from the euro area.
Third, even if the loan does go ahead, it is not guaranteed that it will be used for Ukraine’s reconstruction. German Chancellor Friedrich Merz – a staunch supporter of the scheme – said this week that the funds should be used “exclusively to finance military equipment”. Commission President Ursula von der Leyen, meanwhile, has suggested that at least “part” of the loan should be used to bolster Europe’s own defence sector.
Fourth, and most importantly, any money used for Ukraine’s reconstruction will come on top of the funds required to sustain Kyiv’s security and war effort, which the EU estimates could reach up to €52 billion per year, as well as Ukraine’s own budget needs, which the IMF assesses amount to an additional €52 billion in 2026 and 2027.
In summary: even assuming substantial private sector involvement, it is perfectly possible, if not likely, that close to half a trillion euros’ worth of taxpayer money will be needed to rebuild Ukraine – and that much more will be required just to keep the country’s lights on.
A tragic conceit
Unfortunately, waning US support for Kyiv means the lion’s share of this financial burden will fall on EU taxpayers. This will further strain EU budgets at a time when governments are already struggling to plug a trillion-euro investment gap with the US and China.
Indeed, this is one key way in which Ukraine’s reconstruction differs from Gaza’s, which is likely to be funded in large part by Gulf countries and other regional actors.
“It is clear that a major global financial effort is required to rebuild Ukraine and Gaza, and the EU will fully play its part,” said a Commission spokesperson, adding that it is “too early to say” what the EU’s exact contribution will be.
After several years of war, however, one could legitimately argue that it’s not too early – indeed, that it’s perhaps already too late – for the EU to come clean about just how major this effort will likely be.
Economy News Roundup
Slovakian Prime Minister Robert Fico “not interested” in more sanctions on Russia. “I am more and more convinced that by constantly discussing Ukraine, we in the EU are covering up our inability to deal with our most fundamental challenges and problems,” the populist strongman wrote in a post on social media on Wednesday evening. His comments came shortly after EU ambassadors failed to agree on the European Commission’s latest sanctions package on Russia – the 19th since Moscow’s full-scale invasion of Ukraine – which Slovakia has repeatedly refused to back despite EU member states’ overwhelming support. EU leaders will discuss the package, which includes a proposal to phase out Russian liquefied natural gas by January 2027 and additional listings of Russia’s “shadow fleet” of oil tankers, at next week’s summit of EU leaders in Brussels. Read more.
IMF hikes eurozone and global growth forecast. The 20-country single currency area is now expected to grow by 1.2% this year, up from the 1% predicted by the IMF in its July forecast. The upgrade was partly driven by the €1 trillion infrastructure and defence spending announced earlier this year by Germany, the bloc’s manufacturing powerhouse and largest economy, whose expected rate of expansion increased from 0.1% to 0.2%. Spain, the main driver of euro area growth in recent years, saw its forecast increase by an even greater 0.4 percentage points, to 2.9%. The IMF similarly increased its growth forecast for the world economy by 0.2 percentage points, to 3.2%, with a slight uptick in the US’ growth forecast to 2% also contributing to the upward global revision. However, the Fund warned that the outlook for the eurozone remains highly unpredictable. “Elevated uncertainty on multiple fronts and higher tariffs” represent the main downside risks, it noted, adding that this has only been “partially offset” by Germany’s fiscal stimulus. Read more.
Denmark urges ‘tough’ response to China’s rare earth restrictions. Speaking before a meeting of EU trade ministers in the Danish city of Horsens on Tuesday, Lars Løkke Rasmussen said that the bloc should “stick together” with Washington to “pressure China to act in a fair way”. “I think we should have a tough response,” said Rasmussen, whose country currently holds the rotating EU presidency. “We need European unity. We are the biggest trading bloc in the world. We have a lot of muscles. We need to flex the muscles.” The comments came after Beijing’s announcement last week of stringent new export controls on rare earths, which are used to produce numerous advanced technologies, including electric vehicles, wind turbines, and key military hardware such as radars and fighter planes. European Commissioner for Trade Maroš Šefčovič similarly condemned Beijing’s “unjustified” measures, which he said represent a “critical concern” for Europe’s long-struggling industries. Read more.
