To restore everything: what you should know about the Marshall Plan for Ukraine

To restore everything: what you should know about the Marshall Plan for Ukraine

And its historical origins

To restore everything: what you should know about the Marshall Plan for Ukraine

“We reached an agreement: whatever happens, free, sovereign and independent Ukraine will be protected and restored. We will come up with our own ‘Marshall Plan’ for the restoration of Ukraine,” British Prime Minister Boris Johnson said at the Visegrád Four summit on March 8 this year.

“Ukrainians' hope for sovereignty should be supported by a real foundation – the ‘Marshall Plan’ for Ukraine,” Polish Prime Minister Mateusz Morawiecki confirmed on March 19.

“This restoration should be paid for by the terrorist state. We cannot afford to wait. Today we already have dozens of destroyed houses, thousands of destroyed infrastructure facilities, hundreds of destroyed schools and hospitals, millions of homeless people. We need to rebuild the country right now,” emphasised the Head of the Office of the President of Ukraine Andriy Yermak at a conference in Lugano on July 4.

Mind has analysed how the West sees this process, what the Ukrainian authorities are counting on and what risks should be taken into account.

Lessons of war and peace

Europe had already passed this stage almost eight decades ago. At that time, it seemed that the Second World War was the last continental war with the use of all possible types of conventional weapons. Over time, it seemed that countries had learnt not to turn disputes over territories, natural resources or historical heritage into sabre-rattling, giving priority to the principles of the global market and diplomacy.

But it was the exact opposite that happened, since a dictatorship with revanchist ambitions, prone to nuclear blackmail and the physical destruction of political opponents, had been maturing for decades in Eastern Europe.

Therefore, the experience of restoring the post-war European economy through the introduction of a systematic investment framework known as the Marshall Plan is still relevant today. However, there is one difference: today the donor countries have begun to discuss the economic agenda not after the victory, as 75 years ago, but immediately as soon as the kremlin's revanchist ambitions crashed due to the resistance of the Armed Forces.

What was the original Marshall Plan like?

The United States, as the main Western beneficiary of the victory over German Nazism, while restoring Europe disfigured by the war, aimed, firstly, to stop the post-war socio-economic depression on the continent, and secondly, to prevent the kremlin's political influence from spreading to the west.

The instrument chosen was the introduction of incentives for the development of the free market in European countries and the systematic denazification of the spheres of education and culture in Germany, the western part of which was under the control of the United States and Great Britain.

The task was extremely difficult. As a result of months of bombing, some cities resembled the Ukrainian Mariupol or Okhtyrka at the present time, millions of refugees were living in temporary camps, experiencing a constant food shortages and lack of basic medical care, the transport infrastructure was destroyed, which didn't allow the preserved industry to resume its functioning.

But the Americans managed to change the image of Western Europe and spread in its countries a self-regulated system of protection of democracy and humanism, and most importantly – political principles that made it impossible to further use military methods of conflict resolution.

It was a new “Lend-Lease” designed to get rid of the socio-economic consequences of the war and the prerequisites for its recurrence on the European continent.

The US Army Chief of Staff, George Marshall became the inspirer for this plan. He was a former strategic advisor to President Franklin D. Roosevelt, appointed in early 1947 as Secretary of State under President Harry Truman. The plan was officially called the European Recovery Programme, but it went down in history under the name of its architect.

The presentation of the Plan took place at the graduation ceremony at Harvard University on June 5, 1947. It took a team of five hundred full-time analysts half a year to calculate the volumes and algorithms of the tranches of financial and material assistance, which reached $13.3 billion.

In reality, from April 3, 1948 to June 30, 1951, the United States spent more than $17 billion on the implementation of the Plan. Today, this amount would look about 36 times larger, based on the purchasing power parity index.

Winston Churchill called the Marshall Plan “the most unsordid act in history”, which helped Europe to restore the internal market and heal the wounds of both world wars. After all, Europeans managed to live without wars for eight decades in a row for the first time in history. Whereas by the middle of the 20th century almost every second generation of Europeans went through the war.

According to the Win-Win principle

The implementation of the Marshall Plan had strong economic motives for the United States itself. After all, Europe was the largest economic partner of the New World for two centuries.

Despite the fact that the USA owned almost half of the world's gold and currency reserves, long-term economic development would be impossible without the recovery of Europe. Two-thirds of the pre-war US trade balance was formed in tandem with the European market.

Moreover, the post-war poor would play into the hands of the spread of communist attitudes in the Old World, which in the first post-war years reached an unprecedented level almost everywhere, and in Italy as well as in Greece persisted until the 1980s.

If successful, the Marshall Plan cut the means of left-wing propaganda manipulation of the public opinion of poor Europeans, and thereby spreading Stalinist influence over European governments. In the long run, all these goals came down to one thing: the victory of the West in the Cold War, so they were almost the most effective tool of democracy in the confrontation with the totalitarian world.

How did it work?

On September 22, 1947, delegates from 16 countries signed a list of the most critical needs of Europeans for 1948-1951 in the Grand Palais in Paris. Great Britain was to receive 23% of the total amount of assistance, France – 20%, Italy and West Germany received about 10% of the total amount. Another 18 countries, in particular Japan, received stabilisation assistance, which was proportional to the number of population.

During the three years of implementation of the Plan, the total GDP of the countries of Western Europe increased by 33%. Compared to 1938, industrial production increased by almost a half, the volume of agricultural products increased by 11%, and international trade increased by 40%.

Europe began to gradually recover from the horrors of the war. But Marshall also achieved the second goal – the strategic advantage of the Western market model – by increasing the standard of living and political stability, and, therefore, prevented the spread of the illusions of communism. After all, he contributed to the rise of an effective military-political structure – NATO. Over time, it became a key factor in European integration and the socio-economic basis for the emergence of the EU.

How did Molotov “save” Marshall?

Oddly enough, the success of the Marshall Plan was also ensured by the refusal of the USSR to participate in it, which was also offered to join purely for diplomatic reasons, as USSR suffered perhaps the greatest humanitarian and infrastructural losses as a result of the war.

In the memoirs of General Douglas MacArthur, the supreme commander of US forces in the Pacific Ocean, there is a reference to the fact that the White House uncorked a 150-year-old vintage champagne when the USSR Foreign Minister Molotov sent an official refusal.

Because the participation of the USSR could put an end to George Marshall's economic calculations, especially since the Union had been already sabotaging the payment of Lend-Lease debts at that time – even at the expense of reparations from Germany.

It should be recalled that the total volume of military and humanitarian supplies to the USSR under Lend-Lease during the years 1942-1945 amounted to almost $11 billion. At the same time, the industrial equipment left in the Soviet Union amounting to $2.6 billion was subject to return or compensation.

The US was ready to deduct 50% of this amount immediately, later it was reduced to $800 million with a thirty-year instalment. But still, the US has received nothing but $48 million in 1973.

Together with the Union, the communist governments of Central and Eastern Europe refused to participate in the Marshall Plan. And it became fatal for Ukrainian farmers. During 1945-1947, the USSR tried to organise an alternative food programme for the occupied countries. This caused another wave of famine, and even in those areas, where it was hardly felt during the years 1932-1933.

Marshall Plan – 2: Ukraine

From the first weeks of the russian invasion, it became obvious that the Russian Federation was deliberately destroying Ukrainian cities and infrastructure. Recovery will require enormous resources.

Since it was the Marshall Plan which became synonymous with post-war reconstruction programmes, as early as the beginning of April 2022, this idea was discussed in the IMF and the World Bank under this very definition, which is significant for European history.

The editor-in-chief of The Financial Times, Gillian Tett, notes an opinion piece: despite the fact that the original Marshall Plan came into force only three years after the end of the Second World War, this time the world community is ready to act in advance.

The first, most detailed variant of such a programme – A Blueprint for the Reconstruction of Ukraine – was already offered by the British Centre for Economic Policy Research (CEPR) as early as the end of April 2022. Several experts from the Stockholm School of Economics, Harvard University, the UC Berkeley, and the Massachusetts Institute of Technology participated in its development.

From Ukraine, a team led by the adviser to the head of the Office of the President of Ukraine Tymofiy Mylovanov joined the pool of expert.

According to the developers, key management of the Plan should rest on a non-governmental investment and recovery agency with broad autonomy in operational project management, while Ukraine would remain the “owner” of the reconstruction programme. The amount of assistance is expected to reach $500 billion, if taking into account the final losses at the end of the hot phase of hostilities.

The plan should also consider the strategic interests of the donor countries. In particular, the EU companies will have a priority right of contracts in the field of infrastructure, housing construction, transport, etc. with an eye on the migration of technologies to Ukraine.

What does the “official” concept imply?

The Ukrainian government and an international expert team estimated the implementation of the “Marshall Plan” for Ukraine at $765 billion with the target date for its implementation – the year 2032. Of these, $65 billion should be raised already this year, about $300 billion – at the stage of the so-called Fast recovery, which covers the years 2023-2026. This stage will focus on social infrastructure and engineering communications.

The third part of the plan – Modernisation from 2026 to 2032 – will require about $400 billion and will include the maximisation of products with high added value in the Ukrainian economy as well as the minimisation of the “carbon footprint”.

For the current year, investments in landmine clearance 5% of the country's territory, preparing the power system for the winter period and gas storage, insuring investments against war risks, beginning of the construction of a cargo corridor to the Lithuanian Klaipeda through Poland, and finally – repairing of 20,000 war-damaged houses and building of 100,000 new residential buildings are foreseen.

The further investment plan envisages the appearance of European-standard railway infrastructure, new NPP units and European market-oriented industrial clusters in Ukraine over the next 10 years.

Structurally, the Ukrainian vision of the plan is divided into 15 segments.

The Plan also includes more than $50 billion for the country's defence capability and the restart of the defence industry with a focus on NATO standards.

Technically, this will happen through the Defence Technology Agency – an analogue of the American DARPA, and the Diya Tech and Defence Accelerator – based on the model of Diya City, in the environment of which the majority of Ukrainian IT specialists are working nowadays.

According to the Minister of Defence of Ukraine Oleksiy Reznikov, Ukraine has already become an associate member of the programme of technological cooperation of the NATO countries' armed forces, and accordingly has the right to develop and make changes to key NATO standards.

Who pays?

The priority source of funds should become the frozen assets of the aggressor country and oligarchs from putin's inner circle. “Ukraine has proposed to conclude an international agreement that will create a special mechanism for the payment of compensations at the expense of russian assets abroad,” said the head of the Office of the President of Ukraine Andriy Yermak at the summit in Lugano.

In order to identify and arrest assets affiliated with the kremlin, the international community should accumulate the efforts of the law enforcement system and international arbitration. This also refers to the funds of the russian federation from the sale of oil and gas, as well as from a special tax on the export of russian energy carriers, from which the EU can finance grants given to Ukraine.

The receiving of funds from international donors is also provided for. According to the Bloomberg agency, the European Commission plans to allocate $523 billion for these needs. The EU is also preparing a large-scale fundraising campaign for Ukraine in autumn 2022.

Ukraine, for its part, in the interest of transparency of the funds usage, should digitise state registers and ensure limited access to them.

How to evaluate the success of recovery?

The measure of the successful implementation of the Ukrainian Marshall Plan is at least 7% economic growth every year, as well as Ukraine's entry into the list of 25 leading countries according to the Human Capital Index. In 2020, Ukraine took only 53rd place in the list.

Former Minister of Infrastructure of Ukraine Volodymyr Omelian emphasises that a certain competition between the American, European and, so to speak, G-7 approaches regarding the implementation of the Plan is already noted.

“The conference in Lugano was not about money matters, but about seizing the initiative. That is why the proposal of a European platform and the readiness of Brussels to “take Ukraine's hand” and lead it to the EU membership were announced at the conference. After all, this is a guarantee of the presence of European companies on the market in the future,” he states.

The head of the European Commission, Ursula von der Leyen, hinted that a deeper discussion on mechanisms for attracting assistance and financing will take place during the international conference of donors, which Britain and Denmark are preparing to hold in August 2022.

What else should be taken into account?

From time to time, the doubt regarding the readiness of the international partners to invest in reconstruction processes before the end of the active phase of hostilities appears in the expert environment. “65 billion dollars [of the national debt] that were announced by the Ukrainian government is a critical budget deficit of Ukraine this year, but not the direct losses caused by the war. And such an approach can be negatively perceived by donors,” – says Yevhen Magda, the Head of the Institute of World Politics.

Therefore, this financial year may turn out to be even more difficult for the Ukrainian economy than it seemed in the first months of the war. In order to lighten the burden, the Ukrainian government should make every effort to increase the confidence of Western financial institutions.

In particular, to ensure maximum distancing of the state from the key role in the distribution of funds for recovery programmes, the executive director of the Institute of Legislative Ideas, Martyna Bohuslavets, is convinced.

After all, the longer the war lasts, the higher the price will be paid not only by the Western investor, but also by the Ukrainians – in the lives of the Ukrainian people – both military and civilian ones. It is possible to rebuild roads, bridges, airports, restore even completely destroyed cities, as has already happened more than once after large-scale natural disasters. However, no investment project is able to bring back those whose fate was cut short by this cruel war. And this is probably the biggest risk which should be taken into account both by Ukraine and the EU until the “Marshall Plan” for Ukraine becomes a fait accompli.

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