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Is a Marshall Plan for Ukraine possible?

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Photo: © UNICEF/Ashley Gilbertson

Reflecting on Ukraine’s future beyond the current conflict, many politicians and experts speculate about the expediency of a new Marshall Plan for the country. Although the old Plan (officially known as the European Recovery Program) was designed and implemented by the Truman administration some three quarters of a century ago, it is still considered one of the most successful large-scale projects of post-conflict reconstruction. The experience still represents a certain value today. Leaving aside the political aspects of the U.S. aid program to Europe, which is a separate subject to discuss, we will confine ourselves to some relevant technical features of this initiative.

First of all, it would be wrong to think of the Marshall Plan as some bottomless source of financial resources that poured by the United States into the economy of Western Europe. In 1948–1951, Washington invested in Europe just over $13 billion, which is about $115 to $150 billion at today’s rate. Recall that at the end of the summer the Ukrainian leadership estimated the needs for the post-conflict reconstruction of the country at $600–800 billion—by the results of the autumn hostilities with a lot of new damage inflicted upon the core economic infrastructure, these needs were to increase even more, measuring now in trillions of dollars.

Since financial resources under the Marshall Plan were distributed among 17 countries and territories, even the largest recipients did not receive much: Great Britain — 3.3 billion, France — 2.3 billion, West Germany — 1.4 billion, Italy — 1.2 billion, etc. Most of experts believe that the money received from the U.S. directly boosted the growth of European economies by about 0.5% per year on average. However, this does not mean that the Marshall Plan played a merely marginal role in the post-conflict reconstruction of Europe. The importance of the Plan was not so much in the absolute amount of aid, but rather in the fact that this mechanism helped launch the natural process of Europe’s economic revival, namely the recovery of the private sector, the accumulation of trade between European countries, the rise of national investment activity, and the establishment of new economic institutions. The Plan also acted as a kind of guarantee granted to European nations by the U.S. government, allowing the gateways to open for the flow of American FDIs into Western Europe. It also became a catalyst for the fast growth of domestic investments in most of participating countries.

Applied to the current situation, this suggests that foreign aid as such is unlikely to be the only or the main driver of the post-conflict development of the Ukrainian economy. Ukraine still needs to make decisive progress in such areas as combating corruption, the independence of the judiciary, and improving the quality of public administration at various levels. The challenge is to unleash the creative potential of the Ukrainian society and to make full use of the many comparative advantages that the nation can demonstrate integrating itself into European and global economies. In other words, any potential Marshall Plan for Ukraine is not a substitute for still incomplete domestic reforms, but only one of the possible tools to facilitate them. But just as three-quarters of a century ago, large-scale government or international aid programs should stimulate private sector investment, both external and domestic.

The source of funding for the reconstruction of Western Europe in the late 1940s – early 1950s was obvious, since the U.S. was at the peak of its economic and financial power and could therefore allocate 13 billion to European countries relatively painlessly. Moreover, a significant part of these resources was returned to the U.S. in the form of purchases of American goods and services by Europeans. Even in those days, though, Washington began to cut aid to European partners as soon as money was needed for the Korean War.

Today, the U.S. is burdened with much more serious financial problems, and one should no longer expect Washington to be that generous. Especially since the U.S. has already taken the lead in providing unprecedented military and technical assistance to Kiev. Given the importance of Ukraine to the states of the EU, it would be logical to assume that Brussels rather than Washington would be the main donor for a post-conflict Ukraine. However, today the financial standing of the European Union, including Germany as the main potential sponsor of the new Marshall Plan, leaves much to be desired.

Perhaps, architects of a new Plan could rely on the reserves of the Russian Central Bank, frozen by the West after February 24, 2022. Making a decisive move from freezing to confiscation is not yet possible, but it will probably be done in the end. However, there are many other contenders for these Russian funds. For example, countries that have sheltered Ukrainian refugees, as well as those most affected by the sanctions war with Moscow, would like to receive financial compensation. So, in fact, $300 billion of frozen Russian reserves is not a bottomless pit where you can get money at will. Even if all of this money ends up in Ukraine, it is not likely to cover all the costs of the post-conflict reconstruction.

Only in case of complete and unconditional surrender of the Kremlin could it be possible to pull significant funds from Russia to add to the declared level of $600–800 billion. Today, such a surrender does not look as a likely outcome of the conflict. However, if we assume a scenario of such surrender for a moment, we then have to conclude that a depleted and bloodless Russia, capitulated to the Collective West, simply won’t have the necessary resources it could promptly transfer to the reconstruction of Ukraine. Paying reparations has never been easy. For example, after the end of World War I, Germany could not pay its war debts to the victorious countries in full as late as the end of the Weimar Republic, and in 1933 the Third Reich simply unilaterally refused to pay any further reparations afterwards.

Apparently, Ukraine’s recovery will take a long time under any scenario for the end of the crisis. It might go faster in agriculture, in residential construction or in services, it is likely to go slower in heavy industry and in hi-tech. In the case of Ukraine, it is probably not quite correct to talk about “recovery”, because the task will not be to return to the old economic structure that the country had in the beginning of the century, but to create an entirely new economy, which could organically fit into the international (global, not just European) division of labor of the mid-21st century. In this process, the role of external sources of funding will be significant, although not decisive. Much more will depend on the strategic economic decisions made in Kyiv, as well as on the long-term vision that the European Union might or might not develop regarding a unique future role of Ukraine in the Forth Industrial Revolution, which is already sweeping across the continent.

Another feature of the Marshall Plan should be noted. The program was launched two years after the end of World War II, when not only the military actions in Europe were completely stopped, but the post-war European order was defined as a whole. If we draw an analogy with the present, a successful Marshall Plan for Ukraine can also be possible only once the conflict is over and when minimal stability is restored on the European continent. This, in turn, means that each new day of the conflict results in new human casualties and causes greater damage to the Ukrainian economy, pushing the prospect of the beginning of the post-conflict reconstruction farther away.

From our partner RIAC

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Eastern Europe

China Still Ambivalent About the Middle Corridor

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Image Source: Mbkv717/Flickr

Despite the oft-touted momentum behind the Eurasian Middle Corridor circumventing Russia, China still appears not to be fully behind the project beset by geopolitical challenges and infrastructure hurdles.

Overlapping Interests

Russia’s war on Ukraine has been a game-changer for Eurasian connectivity. The route through north Eurasia running from China to Europe that served as a major conduit between the two is now less attractive as a result of the Western sanctions imposed on Moscow. China-EU shipments along the Northern Corridor have decreased by 40 percent according to data from October 2022. This new reality serves as a major incentive for finding alternative routes.

It is rare in geopolitics that so many states in such a short timeframe would agree on advancing a certain project. The Middle Corridor, connecting China and Europe via Central Asia, the Caucasus and the Black Sea, is a good example of a vision where different countries from across Eurasia have accelerated the work not only on promoting the idea, but also laying the ground for its expansion.

In the months following the invasion of Ukraine, the EU has re-invigorated its policies toward the wider Black Sea region and has actively engaged Central Asia through high-level visits, pledging economic and political support. No longer willing to trade with China through Russia, Brussels is now pushing for the expansion of the Middle Corridor.

Small nations along the Corridor, too, have upped their diplomatic game. Leaders of Azerbaijan, Georgia, and Central Asian states have grasped the emerging opportunity and begun inter-state cooperation through bilateral visits and the signing of memorandums on the minimization of tariffs and border crossing hurdles.

The effects of such cooperation are already evident. Indeed, emerging connectivity opportunities push the governments to reconsider their previous position on long-stalled projects such as the Anaklia deep sea port in the case of Georgia or the China-Kyrgyzstan-Uzbekistan railway, which the cooperating states pledged to begin work on in 2023.

Then, there is Turkey. Seeing an opening in the region, Ankara has increased its outreach to Central Asia already following Azerbaijan’s victory over Armenia in 2020. Effectively the initiator of the Middle Corridor idea back in 2000s, Turkey is now arguably one of the critical players driving the concept. A series of “block train” transports were initiated in recent years, traversing the corridor. In February 2021, a train reached China from Turkey’s eastern provinces after nearly twenty days of transit. In April 2022, another train was dispatched via the same route. Turkish President Recep Tayyip Erdogan and his Kazakh colleague Kassym-Jomart Tokayev commended during their summit in Ankara in 2022 “the growth of cargo transit via the Baku-Tbilisi-Kars railroad and the East-West Middle Corridor.” Moreover, the two sides “stressed the importance of strengthening coordination between the relevant institutions for the effective and sustainable use of the Middle Corridor.”

Yet, one critical player– China – is largely missing. Beijing has rarely commented on the Middle Corridor and Chinese analysts write exceptionally little on the issue. Most importantly, Beijing has invested very little in the actual development of the corridor.

Significant Constraints

China’s reticence so far can be explained by pure pragmatism. Of course, there is a major imperative for Beijing to find alternative routes as transit through Russia becomes problematic. In that regard, the Caspian Sea and the South Caucasus indeed constitute geographically the shortest link to Europe.

Yet, the route is not an easy one – it is multimodal, i.e. consists of both sea lines and land routes and crosses multiple countries which have made little effort to synchronize their transit capabilities and develop infrastructure before 2022.

Currently, there is close to no joint tariff coordination, effective inter-governmental dialogue and adequate infrastructure to process the throughput which has been shipped through Russia. For instance, lack of infrastructure in the Caspian Sea prevents convenient transit from Central Asian ports to Azerbaijan. Similar troubles beset the Georgian side of the Black Sea, especially as there is no deep sea port. The construction of the Anaklia port was postponed due to political infighting in the country with new construction plans only recently announced. In 2022, the Middle Corridor could only absorb 3-5 percent of the China-EU trade, which limits Beijing’s interest in the route.

Finally, geopolitical factors, such as instability in the South Caucasus, have contributed to making the Middle Corridor not as attractive for China as it might seem on the first sight. Russian influence is a primary factor. Despite Russia’s current weakness and incrementally growing dependence on China, the latter will have to carefully measure how Moscow will be responding to the development of a route which circumvents it from the south, in the region where Moscow has four military bases.

Kremlin could potentially rupture the connection both politically and through the use of more radical measures if deemed necessary. Much will depend on how Moscow fares in Ukraine. Perhaps a victory might even embolden it to prevent the corridor from materializing. But even if defeated or bogged down in a protracted war, Russia’s behavior will remain unpredictable, keeping China at unease.

From the South Caucasus, the Middle Corridor continues to either the Black Sea or Turkey. The former is currently a war theater, with chances for peaceful implementation of the corridor quite limited. This leaves China with Turkey.

Ankara and Beijing have promoted inherently competing visions of Eurasian connectivity. There were even hints that Turkish and Chinese influence clashed in Azerbaijan, which limited China’s engagement in the expansion of the Middle Corridor. After the outbreak of the war in Ukraine, the situation seems to have changed and Turkey and China have opened more active talks on cooperation along the corridor. For instance, China-Turkey Communication Forum was held in September 2022, focusing, among other things, on synergizing the Belt and Road Initiative (BRI) with the Turkey’s Middle Corridor. Yet, the pace of cooperation remains slow with little practical steps taken so far.

Looking Ahead

China might eventually grow interested in the re-invigorated Middle Corridor as a part of a hedging strategy. As was the case with silk roads in ancient and medieval times, trade corridors rarely remain static. They constantly adjust to emerging opportunities and evade potential geopolitical dangers. In the same vein, China’s massive BRI is far from stationary, but constantly evolving and adjusting to varying circumstances instead.

Although the South Caucasus and the Caspian Sea have not featured high in the BRI documents published by Beijing, the region can rise to rank higher among Chinese interests amid a new emerging geopolitical reality. This is especially the case if Russia grows even more sidelined in Eurasian geopolitics and Beijing realizes that betting on Russia long-term is a dead-end.

Author’s note: first published in chinaobservers

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Eastern Europe

A turning moment in Ukraine Crisis

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Germany’s decision to send tanks to Ukraine is a major moment in the Ukraine Crisis. It will have a far-reaching impact and may turn it into World War III. It is a tradition of the US to gang up to counter its adversaries. Iraq war, Libyan attacks, Syrian aggression, and the Occupation of Afghanistan, all were the result of allied forces, the US has the skills to make allies in addition to NATO and achieve its political objectives.

The US lobbies against its adversaries, and use all dirty tricks including media to malign its adversaries. They mislead the public and level the ground for the next stage – armed intervention. Looking at US interventions in any part of the world, you may conclude a similar approach.

Ukraine is also no exception. The US was preparing grounds for this crisis for a long and dragged Russia into it. Including Ukraine in NATO, was a red line for Russia, but, deliberately, this path was chosen to spoil global peace.

After failing all negotiations, Russia was left with no option except launch a special military operation on the same line as the 2014 Crimea operation. It was just a limited operation and should have been over after securing Russian borders only.

Unfortunately, the US had different intentions and trapped Russia in Ukraine and a full-scale war started. It was purely American war against Russia, but, as usual, America ganged up with NATO and also sought assistance and support from friendly countries.

German Chancellor Olaf Scholz announced the move on Wednesday, bowing to intensifying international pressure – led by the United States, Poland, and a bloc of other European nations, which called on Berlin to step up its military support and commit to sending their sought-after vehicles. The influx of Western tanks into the conflict has the potential to change the shape of the war. The shipments are a breakthrough in the West’s military support for Kyiv, signaling a bullish view around the world about Ukraine’s ability to reclaim occupied territory. Crucially, they may allow Ukraine to take the fighting to Moscow’s forces and re-capture more occupied land, rather than focusing primarily on beating back Russian attacks.

The US has increased its defense budget and military aid to Ukraine. It is aimed to attack Russia, not limited to liberating Ukraine only. It will prolong the war and let Russia bleed for longer.

Participation of Europe in conflict may worsen the situation and may harm Europe more. Although there are public rallies, protests, and agitations in major cities in Europe to end the Ukraine war or at least oppose Europe’s active participation. Some were chanting slogans to leave NATO. It seems the public understands the consequences but the rulers are blindly following US policies. It might create a rift between the public and rulers.

Blunders made by rulers, but, the price is being paid by the public, in the form of inflation, hikes in the price of fuel, energy, food, etc., are a common phenomenon all over Europe. The danger of spreading the war is at high risk.

Imagine, if Russia also seeks assistance from its allies and gangs up to conform to NATO aggression, it will be certainly a Word War III. Today, the World is obviously polarized and blocks are emerging rapidly.

It also can turn into nuclear war too. The 8 declared nuclear states have enough piles of nuclear weapons to destroy the whole world completely. It is scaring scenario.

But despite knowing the consequences, no one is taking any initiative to end the war and seek political solutions to the crisis. The US is not interested in the peaceful resolution of the disputes and Europe is blindly following America.

It is urged that the UN may intervene proactively and initiate a dialogue to reach an acceptable solution for all stakeholders. Unbiased, non-partisan nations may come forward to initiate peace dialogues. All peace-loving countries and individuals may act proactively and struggle to end the Ukraine crisis. Satisfying all concerned parties may achieve sustainable peace and avert any big disaster.

Humankind is the most precious thing in this universe and must be respected. Value human lives, save human lives, and without any discrimination protects human lives across the board all over the globe.

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Eastern Europe

Lithuanian society is left shaken by plans to raise retirement age

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This month Lithuanian society is left shaken after spreading the news about the increasing of the retirement age. In Lithuania, the retirement age has increased every year since 2012 and by 2026 it will be 65 years. Previously, discussion surfaced on whether raising the retirement age to 72 would help offset Lithuania’s ageing population issues.

As Lithuania’s demographic situation continues to worsen, the European Commission estimates that the number of working-age people capable of supporting pensioners will go down in the future. Brussels says that increasing the retirement age could be a solution.

The existing average in Lithuania is now 57.5 years. It should be said that Lithuania expects to reach a life expectancy of 65 years only in 2030.

In some years there will be 50 retirees per 100 working people and it will have crucial implications for public finances and may require raising taxes. At the moment, 35% of the country’s population are aged over 55.

Before prolonging its working age, Lithuania should address the relatively poor health and low life expectancy of its population. Before they even reach retirement age, many people in Lithuania are unable to work due to high prevalence of chronic, non-infectious conditions.

It’s necessary to focus on increasing healthy life expectancy in Lithuania, instead of weighing up the idea of increasing the retirement age, Irena Segalovičienė, presidential adviser has said.

Taking into account the fact that men in Lithuania live an average of 14 more years from the age of 65, and women an 18 more years, Vilnius residents are not impressed with such an idea.

The officials are afraid of possible protests which could lead even to the government resignation.

Thus, late Thursday afternoon millions of French workers were still on the streets protesting against President Emmanuel Macron’s planned pension reforms.

Lithuanian officials were quick to announce that it’s inadequate to consider a 7-year increase in the retirement age at this stage. Most likely, the news was deliberately disseminated in order to study public opinion on this issue.

Discussion is most toxic now, and will continue in Lithuania because wasting money on defence, government puts aging population at risk of poverty and death.

At the same time, the government calls for more defense spending. Together with Poland and the UK, Lithuania is leading a push within the NATO to agree to higher spending goals. In 2023, the country’s national defense budget will reach 2.52% of its gross domestic product (GDP). According to Zilvinas Tomkus, Lithuania’s vice minister of defence, Lithuania is ready to spend even more on the modernization of its armed forces and military infrastructure. The more so, spending money on defence procurement today will not improve Lithuania defence today. The modernized weapons, vehicles and equipment will be available only in some years while old Lithuanians need money right now just to survive.

Thus, chosen political priorities do not reflect the current social and economic situation in the country and even worsen it.

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