A European People’s Bond could support the reconstruction of Ukraine

The author is a senior fellow at the German Marshall Fund of the United States of America

Basic moral values ​​and historical precedent demand that the defeated aggressor must pay for the war in Ukraine. Some advocates argue that reparations should begin immediately by freezing the Russian government’s alleged $300 billion in assets frozen in Western financial institutions.

However, the broad international legal protection of sovereign governments means that such confiscation would be difficult to implement, especially as many G7 nations remain embroiled in often frivolous historical disputes over World War II reparations and the prospect of taking unified action. Not there. A more viable approach might be to make payments during any comprehensive peace settlement between Ukraine and a defeated Russia, as these funds could be released for their proper purpose by the Russian government over time.

However, a peace deal will take time and Ukraine still needs money. Fortunately, history shows simple ways in which an engaged public can be tapped to support a just cause. It is time for the Europeans to bond.

The relationship between a nation’s ability to wage war and raise money has become apparent since the emergence of the modern state. Wars considered just and necessary often receive direct financial support from the public. In World War I, the US federal government’s Liberty Bonds and the UK Government’s War Bonds showed the power of patriotism in the form of investment advice to retail investors. As large number of Europeans Support Ukraine with financial aid, and as Kiev’s needs grow, the EU and individual European countries should directly tap into the goodwill of their populations toward Ukraine. europe must follow leadership of canada and the issuance of European People’s Bonds for Ukraine targeted directly to European retail investors.

The war in Ukraine is entering a critical phase. Fierce fighting remains but there is hope that reconstruction and economic normalization of large parts of the country untouched by direct war can now accelerate. The supply of heavy weapons by Western powers underscores their confidence in Ukraine’s combat capability and eventual victory. That is why it is appropriate to start planning for a complete reconstruction of Ukraine. As the EU has agreed to open membership talks with Kiev and the US provides most military aid, the bulk of the future costs of Ukraine’s reconstruction should fall on the EU and its member states. It is in Europe that Ukraine most of all needs new ideas for financial assistance.

The EU has pledged €18bn to support the Ukrainian economy this year, of which it plans Raise €10 billion in the form of “EU bonds”., as part of the European Commission’s total bond issuance of €80bn in the first half of 2023. The Commission relies on a primary dealer network of 41 banks to market EU bonds to a broad institutional investor base. Now it must use public support for Ukraine to expand its investor pool and include retail investors.

Last year, the Canadian government showed the way. it issued a Five-year C$500 million Ukraine Sovereignty Bond, in denominations as small as C$100, targeted to retail investors through a network of 10 Canadian financial institutions. The proceeds from the bonds go directly to support Ukraine through the IMF. But investors buy the equivalent of a normal Canadian government bond at maturity, backed by Ottawa’s AAA rating and repaid by the Canadian government.

As the Commission already issues green bonds, there is no technical barrier to Brussels arranging with its primary dealers – many of whom are large retail bank operations in Europe – to issue EU-backed European People’s Bonds to individual European investors. to bring to market. The Commission should now announce this initiative for Ukraine.

Of course, all common European debt is politically controversial, and the governments and treasuries of some member states may dislike a European institution adopting the traditional sovereign state characteristic of issuing debt to retail investors in times of war. If so, individual member states themselves should replicate Canadian retail bonds for Ukraine’s consideration. The proceeds from such National People’s Bonds may be pledged bilaterally to the Government of Ukraine or to other recipient entities in Ukraine. Alternatively, they could be earmarked as direct voluntary member state contributions to the EU budget for Ukraine, through the IMF like the Canadian bond proceeds.

The European public remains steadfast in its support of Ukraine’s just cause. European governments and the EU should give them an additional direct channel to contribute financially to the victory of Kiev and to the reconstruction of Ukraine through European People’s Bonds.