EU states set to pay bulk of Ukraine's reconstruction costs

BRUSSELS • The European Union is planning to establish a solidarity trust fund to finance the reconstruction of war-shattered Ukraine as member states were told they should expect to pay the bulk of the costs.

The European Commission told diplomats that it is working on an EU instrument focusing on the long-term needs of the country instead of a multilateral tool since the bloc will foot much of the bill, according to people familiar with the discussion.

Modelled on the post-Covid-19 recovery fund for member states, it would finance investments and reforms in agreement with Ukraine's government, but it is not clear how much would be provided through grants or loans.

Since the war is still ongoing, the EU executive's arm is not willing to put a price tag on the task, but told EU ambassadors that the figure would reach hundreds of billions of euros over decades.

The topics of post-war reconstruction and possible war reparations are expected to garner attention over the next weeks as senior officials in Brussels and Washington plan to discuss ways to support Kyiv financially and to ensure that the enormous amount of money is not misused, EU officials said.

The World Bank will host a ministerial session tomorrow on Ukraine during the spring meetings of the International Monetary Fund in Washington.

Commission executive vice-president Valdis Dombrovskis is expected to participate.

It is hard for countries to move too far on any plan with Russian forces still on the attack, but even if the war ends, there will be significant obstacles.

Ukraine's endemic corruption and the lack of robust oversight mechanisms are two of the biggest roadblocks.

The Netherlands has suggested that any new reconstruction tool could be used to help implement governing structures in the country that would bring it closer to the EU and smoothen its eventual accession path, the people said.

As a first step, the commission would conduct a thorough assessment of the financial needs together with the World Bank.

The Ukrainian government estimates that the destruction in its territory by Russian forces amounts to US$1 trillion (S$1.4 trillion).

Most of the initial aid would go towards rebuilding infrastructure and supporting the provision of public services.

Ukrainian President Volodymyr Zelensky told commission president Ursula von der Leyen that his government needs US$5 billion to US$7 billion a month to cover wages and other social expenditures.

The bloc has already disbursed €600 million (S$886 million) in soft loans since the war started and it is speeding up the approval of an additional €600 million that could come by this summer, an EU official said.

The EU is also working on an additional loan package that could be of a similar magnitude.

BLOOMBERG