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Europe is struggling to come up with the cash to fund Ukraine’s war effort. Its debt-laden countries would rather not stump up themselves. And the European Commission is still attempting to get full support for its proposal to use frozen Russian assets to back up to €210bn in loans. The danger, however, is that inactivity will be far more costly.
Think of this for a moment as a purely financial question. On the one hand, Europe commits to funding Ukraine’s war efforts for, say, four years, whether through one of the various schemes to leverage frozen Russian assets or, at a pinch, with member states putting up the money themselves. Estimates over how much this would cost vary: the IMF calculates a financing gap of $136bn to 2029 while a report from consultancy Corisk and the Norwegian Institute of International Affairs reckons between €522bn and €838bn.
The pay-off comes if Ukraine can consequently push Russia into a reasonable ceasefire. President Vladimir Putin would hardly be in a position to demand the return of Russia’s €210bn of frozen assets, meaning some or all of the initial outlay would be recouped. And, while Europe has good reasons to raise its defence spending anyway, Putin would be less likely to pose a further military threat.
Now consider the alternative path, where Europe fails to get its act together. Ukraine is then more likely to capitulate to a ceasefire on Russia’s terms, which could see Putin shake off current sanctions and perhaps even return to the G8. Europe, facing a wealthier and emboldened Russia, would be under enormous pressure to spend furiously on rapidly bolstering its defences.
The costs of this scenario, too, could vary widely. Corisk thinks that a Russian victory would cost Europe between €1.2tn and €1.6tn over four years, including raised defence spending and the probable influx of refugees. During the cold war, UK defence spending peaked in 1955-56 at 7.6 per cent of GDP. Getting Europe to that level from its current 1.6 per cent entails extra spending of over $1tn a year.
These are simplified outcomes, and there are others that lie somewhere in between. Russia could gain the upper hand, only to then return to peaceful and profitable relations with its neighbours. But the EU would be unwise to bet on that. It is also possible that Ukraine could get a slug of cash, fight a few more years, and still fail to get an advantage.
But even ascribing a non-zero probability to these outcomes, funding Ukraine’s war effort is a better return on Europe’s buck than having to deter a victorious Russia itself. War transcends pecuniary decisions, of course, but in so far as finance matters, the logical course is fairly clear.