Ukraine’s reconstruction cannot be financed through national budgets alone.
Europe should treat it as a strategic investment in its own security, using common borrowing to mobilise private capital, reward those who share the risks and prevent others from free-riding.
Rebuilding Ukraine is a strategic imperative for Europe. A prosperous, resilient and economically successful Ukraine, anchored firmly in Europe, is one of the strongest long-term deterrents against renewed Russian aggression. Reconstruction is not a humanitarian add-on to supporting Ukraine militarily. It is part of Europe’s forward defence.
Yet Europe risks falling victim to another progress illusion: the belief that, despite mounting evidence to the contrary, things will somehow turn out all right without making difficult choices now. On Ukraine, this means treating reconstruction as a problem for after the war and assuming that, when the time comes, the necessary money and political support will somehow be found.
Peace will not make reconstruction easier
The opposite is more likely. Political resistance will become stronger, particularly if there is a ceasefire. Many voters will ask why, after years of military and financial support, Ukraine should remain a seemingly bottomless pit for their money. Asking them to accept higher taxes or cuts in domestic spending to transfer vast sums to Ukraine will become politically impossible.
But reconstruction remains a strategic imperative. Europe must finance it, it must do so collectively and the scale required means it cannot rely on national public finances. Common European borrowing will therefore have to form part of the answer.
That does not mean every EU member state must participate. A coalition of the willing could bring together EU countries prepared to commit significant resources with non-EU European countries and other like-minded partners such as Canada. Common borrowing does not have to mean borrowing by all 27.
Public money will nevertheless be indispensable because only the public sector can absorb geopolitical risk on the necessary scale. Private investors will not commit hundreds of billions while profound security uncertainty remains. Europe has experience here. The Juncker Plan showed how public guarantees can absorb risks and mobilise much larger volumes of private investment. Ukraine requires the same principle on a far greater scale.
The financing could include a substantial loan element, making it politically easier to sustain than a system dominated by grants. But it should also include investment in assets that can generate long-term returns. In defence, for example, European capital could take stakes in Ukrainian companies, providing them with the capital to expand production and develop new technologies while integrating them into Europe’s defence industrial base. Similar approaches could apply to energy and critical infrastructure.
But the design must also confront free-riding
The US, China and Türkiye will all want their companies to benefit from rebuilding Ukraine without necessarily assuming a commensurate share of the financial and geopolitical risks. So will some EU countries. Europe cannot build a system in which a coalition of countries socialises the risks while others capture the rewards.
Access should therefore be conditional on contribution. Countries that provide financing, accept risk and abide by common rules should receive preferential access to procurement, investment opportunities and long-term partnerships. Those that do not contribute should not expect the same benefits. This must apply within the EU as much as outside it.
Otherwise, free-riding will undermine the political legitimacy of reconstruction itself. Persuading European taxpayers to assume substantial risks for Ukraine will be difficult enough. It will become impossible if they believe countries and companies that have not shared those risks are capturing the economic benefits.
This is not protectionism. It is reciprocity
Nor is reconstruction simply a cost. A stronger Ukrainian defence industry increases European security. A modern Ukrainian energy system integrated into European networks strengthens resilience. New infrastructure will bind Ukraine more closely into the European economy. Properly structured investments can create valuable assets and potential returns while achieving these strategic objectives.
This is why the financing architecture must be designed now. The progress illusion encourages Europe to postpone difficult choices in the hope that circumstances will become easier. They rarely do. Waiting until reconstruction becomes an urgent necessity will make the politics harder and another improvised, lowest-common-denominator compromise more likely.
Europe can stumble into reconstruction, arguing about burden-sharing while domestic support erodes and others position themselves to free-ride. Or a coalition of committed countries can build the architecture now: pooling borrowing capacity, mobilising private capital, investing in strategic assets and ensuring that those who share the risks also share the rewards.
Getting this right would do far more than repair what Russia has destroyed. It would make Ukraine stronger while building European assets, strengthening Europe’s security and generating economic returns for decades to come.
