A European People’s Bond could support the reconstruction of Ukraine

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THE the author is a senior fellow at the German Marshall Fund of the United States

Basic moral values ​​and historical precedents demand that the defeated aggressor pay for the war in Ukraine. Some proponents argue that reparations should begin immediately by seizing an alleged $300 billion of Russian government assets frozen in Western financial institutions.

However, the extensive international legal protections of sovereign governments mean such a seizure it will be difficult to implement, especially as several G7 nations remain embroiled in often frivolous historical disputes over WWII reparations and are unlikely to take united action. A more viable approach might be to pursue the payment during any comprehensive peace deal between Ukraine and a defeated Russia, as over time these funds may be released by the Russian government for their rightful purpose.

However, a peace deal will take time and Ukraine needs the funds now. Fortunately, history shows ingenious ways that engaged audiences can be harnessed to support a worthy cause. It’s time for a European popular bond.

The connection between a nation’s ability to wage war and raise money has been evident since the emergence of the modern state. A war perceived as just and necessary often requires direct financial support from the public. In World War I, US Federal Government Liberty Bonds and British Government War Bonds showed the power of patriotism as investment advice for retail investors. AS large majority of Europeans support financial aid to Ukraine, and as Kiev’s needs grow, the EU and individual European countries should draw directly on the goodwill of their populations towards Ukraine. Europe should follow Canada’s advantage and issue European People’s Bonds for Ukraine directly to European retail investors.

THE war in Ukraine is entering a critical phase. Hard fighting remains, but there is hope that reconstruction and economic normalization of large parts of the country, untouched by direct warfare, can now accelerate. The Western powers’ supplies of heavy weapons underscore their confidence in Ukraine’s fighting prowess and eventual victory. It is therefore appropriate to start planning for the complete reconstruction of Ukraine. Since the EU has agreed to open accession negotiations with Kiev and the United States supplies the majority military support, most of the future cost of rebuilding Ukraine should fall on the EU and its member states. It is in Europe that new ideas for financial assistance to Ukraine are most needed.

The EU has pledged this year 18 billion euros to support the Ukrainian economy, of which it is expected raise around €10 billion in the form of “EU bonds”, as part of the European Commission’s total bond issuance of €80 billion in the first half of 2023. The commission relies on a primary dealer network of 41 banks to market EU bonds to a broad base of institutional investors. It is now expected to use public support for Ukraine to expand its investor pool to include retail investors.

Last year, the Canadian government led the way. Issued a Five-year C$500 million Ukrainian sovereign bond, in denominations of up to C$100, targeted at retail investors through a network of 10 Canadian financial institutions. The proceeds of the bond go directly, through the IMF, to support Ukraine. But investors are buying the equivalent of a regular Canadian government bond, backed by Ottawa’s AAA rating and at maturity to be repaid by the Canadian government.

As the commission already issues green bonds, there is no technical obstacle to Brussels agreeing with its primary dealers – many of whom have large retail banking operations in Europe – to market an EU-backed European popular bond to individual investors Europeans. The commission should immediately announce this initiative for Ukraine.

Of course, all common European debt is politically controversial, and the governments and treasuries of some member states might not like a European institution that adopts the traditional sovereign state feature of issuing wartime debt to retail investors. If so, individual member states would have to replicate the Canadian retail bond idea for Ukraine themselves. The proceeds of such National People’s Bonds could then be pledged bilaterally to the Ukrainian government or other beneficiary entities in Ukraine. Alternatively, such as Canadian bond proceeds routed through the IMF, they could be earmarked as a direct voluntary contribution by member states to the EU budget for Ukraine.

European public opinion remains resolute in supporting Ukraine’s just cause. European governments and the EU should provide them with an additional direct channel to contribute financially to the victory of Kyiv and the reconstruction of Ukraine through European People’s Bonds.