EXCLUSIVE: Senior EU Official Backs Billion Dollar Plan To Rebuild Ukraine

  • Rebuilding Ukraine will cost trillions of euros: EU’s top banker
  • EIB chief Hoyer calls for Marshall-style plan for Ukraine
  • Urges the West and its banks to support Ukraine’s finances

BRUSSELS, May 11 (Reuters) – A top European official has backed a multibillion-dollar “Marshall”-style plan to rebuild Ukraine, pledging the firepower of the EU’s lending arm for what he said must be a global rescue effort.

Werner Hoyer, president of the European Investment Bank (EIB), said Europe must not be left alone to foot the huge bill for Russia’s invasion of Ukraine, which he predicted could run into the trillions.

Under the Marshall Plan implemented after World War II, the United States gave Europe the current equivalent of about $200 billion over four years in economic and technical aid.

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Addressing the need for a similar program for Ukraine, Hoyer told Reuters the cost of rebuilding the country had been discussed at recent meetings at the United Nations, International Monetary Fund and World Bank in Washington.

“How much will it cost to rebuild, rebuild Ukraine? The figures were flying around the room… but one thing is quite clear to me: We are not talking about millions, but trillions,” said Hoyer, a former German foreign minister under Chancellor Helmut. Kohl after the fall of the Berlin Wall.

Hoyer’s comments underline how the European Union is preparing to deal with the growing economic impact of war, using the influence of the pan-national EIB, which normally finances roads, bridges and other infrastructure.

“It’s a challenge for the entire free world to make sure this (support) is provided,” Hoyer said.

“Political leaders need to make up their minds as soon as possible,” Hoyer said. “But I think we need a structure that really speaks to a global audience and not just taxpayers in the European Union.”

‘HUGE PRICE’

Russian forces have leveled cities, towns and villages in Ukraine, destroying infrastructure, disrupting normal economic activity and displacing some 11 million people. The invasion has triggered sweeping Western sanctions against Russia.

In a speech delivered at a military parade on Monday, Russian President Vladimir Putin gave no indication of how long what he describes as a “special military operation” would last. US intelligence says they expect a protracted conflict.

Ukraine’s economy is expected to contract by 45% this year, its Finance Minister Serhiy Marchenko said on Wednesday. read more

“The people of Ukraine are paying a huge price, and this price cannot be assessed,” Marchenko said.

Ukraine’s central bank estimates that a third of companies have completely halted production by now, while the United Nations estimates that almost 6 million people, about 13% of the population, have fled abroad.

Economic Policy Research, a network of economists, estimates that the total cost of rebuilding Ukraine is already 500 billion to 600 billion euros ($528 billion to $633 billion), more than three times its annual economic output before from the war.

Hoyer’s forecast suggests that this could still increase considerably.

Ukrainian war costs

GUARANTEE

Hoyer said a critical part of the plan would be for the big state-sponsored banks in the West to provide “guarantees” to back Ukraine’s government after the war is over.

Doing so should help kyiv regain access to global capital markets, much like Iraq did after the second Gulf War that toppled Saddam Hussein, and hasten its reconstruction.

“If we want to entice the investment community to give us their money … we have to give them guarantees,” Hoyer said, referring to guarantees against big losses for investors.

“I am convinced that the capital markets will be open to this.”

Many of the privately held global investment funds that have lent to Ukraine’s government and companies since a 2015 debt writedown, following Russia’s 2014 seizure of Crimea, say they understand it will now inevitably be needed other.

kyiv has a nearly $1 billion bond payment due in September, which it has repeatedly said it intends to honor.

“I have a feeling there will have to be a discussion with the Ukrainians about where money from the West is best spent,” said Sailesh Lad of AXA Investment Managers.

“No one will want to say, ‘I’m going to hold out,'” added Ray Jian of Amundi, Europe’s largest fund manager, referring to how bondholders were likely to accept debt relief as they fully understood that Ukraine would not have been in such difficulties without the invasion.

Ukraine bonds plummet after Russian invasion

Having already made some financing available to Ukraine, Hoyer said the EIB had another €1.5bn of immediate support available if approved by the European Commission.

The “great uncertainty” for both Ukraine and investors, he said, is whether Russia will be decisively repelled or remain trapped in a series of frozen conflicts like in Crimea.

Hoyer said international aid could be used to finance rail infrastructure to transport Ukraine’s wheat harvest from last year, adding that an estimated €8 billion worth of wheat was still stranded in the country.

“Part of this scandal is that Ukraine has a huge amount of wealth that it cannot monetize. This needs to be addressed.”

He said some financial assistance could be sent even before the conflict ended, for example to repair bridges in safer parts of the country.

($1 = 0.9472 euros)

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Additional reporting by John O’Donnell and Karin Strohecker Editing by Hugh Lawson and Gareth Jones

Our standards: the Thomson Reuters Trust Principles.

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