US$1.1 Trillion To Reconstruct Ukraine? Why Governments Would Return US$340+ Billion To Russia- So Taxpayers In EU, US, UK, Canada, Other Countries Can Borrow The US$750 Billion Difference?
US$1.1 Trillion EIB Estimate To Reconstruct Ukraine Is Numbing And Further Questions Why Governments Would Return US$340+ Billion To Russia- So Taxpayers In EU, US, UK, Canada, Other Countries Can Borrow The US$750 Billion Difference?
Coming Soon? President Biden Instructs Treasury Secretary Yellen To Return US$38 Billion To The Russian Central Bank.
Chancellor Scholz Is Wrong. So Is Rinat Akhmetov.
No To Ukraine Marshall Plan.
Yes To Ukraine Putin Plan.
G7 And EU Should Require Russia To Pay For Ukraine.
Definition Of Nuts: Someone Destroys Your Home. You Have Access To Their Money. You Return Their Money. You Pay To Rebuild Your Home.
Until last week, the most consistent value estimated for the reconstruction of the portions of Ukraine impacted since the early morning of 24 February 2022 by decisions of the armed forces of the Russian Federation ranged from US$100 billion to US$540 billion. Not any more…
The eventual tally will exclude infrastructure devastation/damage inflicted by the armed forces of the Russian Federation within those territories which remain, for the time being or longer, under the commercial, economic, military, and political control of the government of the Russian Federation and its local and regional proxies within those territories. The more territory controlled by the Russian Federation, and the more citizens of Ukraine who depart those territories, the type of reconstruction costs shift from reconstituting areas seized to adding residences and workplaces in remaining territories of Ukraine for those citizens who remain in Ukraine. The Russian Federation may seek to leave uninhabitable what were once residences and workplaces- the fewer people to manage, the easier to manage.
A potential consequence for Ukraine would be relocating industrial, manufacturing, technology, and other companies to locations nearer to the center of Ukraine and to the western borders of Ukraine- resulting in greater ease of connectivity with European Union (EU)-members Hungary, Poland, Romania, and Slovakia and beyond throughout the EU, to which Ukraine is now a Candidate Status on 23 June 2022. The costs to shift the location of Ukraine-based companies which have suffered damage inflicted by the armed forces of the Russian Federation would need to be borne solely by the government of the Russian Federation.
Much of the infrastructure devastation in Ukraine, as opposed to a lesser infrastructure destruction, is concentrated presently within the approximately twenty percent (20%) of the pre-2014 borders of Ukraine controlled by the armed forces of the Russian Federation.
On 22 June 2022, Olaf Scholz, Chancellor of the Republic of Germany, said that he supported creation of a “Marshall Plan for Ukraine” and will discuss the concept during the Group of Seven Industrialized Nations (Canada, France, Germany, Italy, Japan, United Kingdom, United States) G7 Summit scheduled for 26 June 2022 to 28 June 2022 in Schloss Elmau, Germany.
The G7 supports a “massive joint effort” of reconstruction and recovery of Ukraine. There remains disagreement among members as to if and then how to confiscate Russian Federation-connected assets frozen- both government and privately-held, to fund partially or in total the reconstruction of infrastructure in Ukraine. Mr. Christian Lindner, Minister of Finance of Germany, shared that confiscation of the assets “… It is an option that still needs to be thought through.”
Any elected official or appointed official who supports taxpayers in their respective countries spending funds to pay for the damage inflicted upon portions of Ukraine by the armed forces of the Russian Federation should be recalled, retired, defeated, or terminated.
Mr. Rinat Akhmetov, a Ukrainian national with a reported net worth of approximately US$4 billion, is founder and president of Donetsk, Ukraine-based System Capital Management (SCM), the largest diversified financial and industrial group in Ukraine (with a reported 200,000 employees among 500 companies operating in 30 countries). He supports a 21st Century version of the Marshall Plan and Lend-Lease Policy. He is wrong. The government of the Russian Federation is solely responsible for funding the reconstruction of Ukraine.
According to Mr. Akhmetov, there must be an “unprecedented international reconstruction program, a Marshall Plan for Ukraine,” referring to the United States-financed assistance program focused upon rebuilding Western Europe from 1948 to 1952- the US$13.2 billion appropriated then would be today equivalent to approximately US$135 billion. The “Lend-Lease” Policy (officially Act to Promote the Defense of the United States) enacted in 1941 and ended in 1945 was valued at US$50.1 billion, today equivalent to approximately US$500 billion. The then-U.S.S.R. was an early recipient of funds.
It's Your Fault Theory
Mr. Akhmetov is espousing the theory that:
Because the United States and other countries did not take decisions in 2008 to dissuade the Russian Federation from invading and annexing the Abkhazia oblast and South Ossetia oblast in Georgia, and did not then implement subsequent sanctions which would serve as a deterrent rather than an annoyance to the Russian Federation, the United States and other countries are responsible for the damages inflicted by the Russian Federation upon Ukraine.
Because the United States and other countries did not take decisions prior to 2014 to dissuade the Russian Federation from invading and annexing the Crimean Peninsula and invading and annexing the Donbas Region (Donetsk oblast and Luhansk oblast) of Ukraine, and did not then implement subsequent sanctions which would serve as a deterrent rather than an annoyance to the Russian Federation, the United States and other countries are responsible for the damages inflicted by the Russian Federation upon Ukraine.
Because the United States and other countries did not implement sanctions against the Russian Federation prior to the 24 February 2022 invasion of Ukraine by the Russian Federation- as the government of Ukraine requested repeatedly, the United States and other countries are therefore responsible for all that has happened in Ukraine. The ultimate clawback for responsibility.
Approximately US$340 billion in Central Bank of the Russian Federation assets are reported (with varying degrees of accuracy) as held (frozen) outside of the Russian Federation: Germany (US$55 billion), France (US$71 billion), Japan (US$57 billion), United States (US$38 billion), United Kingdom (US$26 billion), Austria (US$17 billion), and Canada (US$16 billion) among others. Approximately 34% of the assets are reported in Euros; 22% in Gold Bullion; 17% in Chinese Yuan; 11% in United States Dollars, and 6% in British Pounds. Surprisingly, in May 2022 the EU reported that the value of frozen Russian Federation Central Bank assets was approximately US$24.5 billion. Mr. Dimitry Peskov, spokesperson for the government of the Russian Federation, shared that confiscation and use of assets of the government of the Russian Federation for benefit of Ukraine would be “illegal, blatant, and of course requiring an appropriate response... It would be, in fact, outright theft.” And how would be defined the export by the government of the Russian Federation of commodities from Ukraine absent permission from the owners of the commodities?
On 21 June 2022, Mr. Werner Hoyer, president of the Luxembourg City, Luxembourg-based European Investment Bank (EIB), shattered the previous estimate.
“I’ve put the trillion [Euros; approximately US$1.05 trillion] out there because I saw figures in the public space that I consider completely unrealistic when I look at the level of destruction” in Ukraine. Europe “will have to play the biggest role” in this effort, he shared during a briefing for media in Frankfurt, Germany.
Mr. Hoyer shared that he is seeking approval to re-assign EIB commitments of approximately €1 billion (approximately US$1.05 billion) to €1.5 billion (approximately US$1.575 billion) for Ukraine reconstruction. The Brussels, Belgium-based European Commission (EC), the operational component for the twenty-seven member European Union (EU) proposed in May 2022 to provide approximately €5 billion (approximately US$5.25 billion) per month to the government of Ukraine for its operational expenses. The government of Ukraine reported that it required approximately €7 billion (approximately US$7.35 billion) per month.
Days after 24 February 2022, the EIB in cooperation with the EC prepared and disbursed to the government of Ukraine within thirty days a €668 million (approximately US$701.4 million) “emergency solidarity package for Ukraine.” The EIB approved a €4 billion (approximately US$4.2 billion) credit line complemented by the “EMBRACE Advisory Platform” to support EU member countries hosting people departing Ukraine and to “develop vital public infrastructure for refugees and host communities.”
How Heavy A Lift Is US$1 Trillion?
Let’s place the €1 trillion (approximately US$1.05 trillion) estimate into a financial perspective in terms of 1) the likely capacity by governments to agree to support such a spending level 2) how these governments would fund such a spending level and 3) and how would the spending be apportioned amongst countries. The most important question is whether such a value is possible to spend in Ukraine let alone possible to source for Ukraine. And what abo the endemic corruption in Ukraine prior to 24 February 2022? Does this landscape miraculously vanish due to what has happened in Ukraine since 24 February 2022? Perhaps, there will be a change to the DNA…
The EU has a long-term budget of €1.082.5 trillion (approximately US$1.136.6 trillion) for the period 2014-2020, representing 1.02% of the then-EU-28 member Gross National Income (GNI) and of €1.074.3 trillion (approximately US$1.128.0 trillion) for the period 2021-2027 reflecting the twenty-seven members of the EU.
The Brussels, Belgium-based European Council (EC), which is comprised of the heads of state and heads of government of the members of the EU, proposed in 2021 an EU budget of approximately €162.9 billion (approximately US$171.0 billion) in commitments and €164.8 billion (approximately US$173.0 billion) in payments. The 2021 budget “will be complemented by actions to support the COVID-19 recovery, which will be funded by Next Generation EU, the EU's €750 billion (approximately US$787.5 billion) pandemic recovery plan.”
The EC reached agreement for the 2022 EU budget: €169.5 billion (approximately US$177.9 billion) in commitments and €170.6 billion (approximately US$179.1 billion) in payments. The budget “mirrors EU priorities including economic recovery, fighting climate change and supporting the green and digital transitions, while leaving enough resources to respond to possible future challenges.”
In November 2021, the United States Congress approved and Joseph Biden, President of the United States signed into law a 2,702-page ten-year infrastructure package with total accumulated spending valued at approximately US$1 trillion (approximately €950 billion). The focus will be roads, bridges, highways, public transport, telecommunications, water supply, airports, railways, internet access, power grid modernization, etc.
During the last twenty years, the United States government has operated with annual deficits approaching and exceeding US$1 trillion- and more than US$2.5 trillion in 2020 and 2021; and has a national debt of approximately US$30.5 trillion.
What Will Need To Be Paid?
The cost of repairing, renovating, reconstructing apartment buildings, single family homes, commercial buildings, electrical wiring, sewer systems, water systems, gas pipelines, roads, bridges, railroads (likely resulting in a change from Ukraine’s existing Russian gauge track to a more widely used European gauge). Many structures were designed and constructed in the 1940’s through 2000’s. But this is 2022 and a 200-unit apartment building with two-bedrooms, one or two-bathrooms, built 40 years ago will be costly because what tenants required then is not what tenants require today; what government permits were required then are not what government permits are required today.
An aside: On 10 June 2022, the Ministry of Foreign Affairs of the Russian Federation shared that an attack upon the Damascus International Airport (DAM) originating in the Golan Heights (territory of Syria occupied since 1967 and then annexed in 1981 by the State of Israel) by the Defense Forces of the State of Israel which inflicted substantial damage to DAM was “the provocative Israeli attack against essential civilian infrastructure” and was “an absolutely unacceptable violation of international norms.”
There will be required billions of dollars more to reimburse those countries (Hungary, Moldova, Poland, Romania, Slovakia), whose borders have welcomed approximately seven million refugees from Ukraine, an increasing number of whom are returning to Ukraine. For perspective, Ukraine’s pre-24 February 2022 population was approximately 44 million.
Other creditors will be Canada, Japan, United Kingdom, United States, and EU members who have contributed tens of billions directly and indirectly to defend Ukraine and assist Ukraine- and whose taxpayers will be asked to do so for years. If politicians have a source to obtain reimbursement, they will find politically beneficial to require the Biden-Harris Administration (2021- ) to use every commercial, economic, and political means to obtain the funds.
Unknown will by the value of payments related to civil lawsuits and criminal prosecutions against the government of the Russian Federation and individuals subject to Russian Federation jurisdiction.
Kyiv, Ukraine, 26 May 2022 (Reuters) - Ukraine's richest man says he plans to sue Russia over what he said was $17 billion to $20 billion in losses caused by its bombardment of steel plants he owns in the devastated city of Mariupol. The Azovstal steelworks suffered heavy damage from Russian bombing and shelling after the sprawling plant became the last bastion of defence in the southern port city. The Illich Steel and Iron Works, also owned by Akhmetov, was also badly damaged during Russian shelling of Mariupol. "We will definitely sue Russia and demand proper compensation for all losses and lost business," Rinat Akhmetov, who owns the biggest Ukrainian steelmaker Metinvest, told Ukrainian news portal mrpl.city in an interview. Asked how much money Metinvest had lost because of the damage to Azovstal and Illich, he said: "The replacement cost ... due to Russian aggression is from $17 to $20 billion. The final amount will be determined in a lawsuit against Russia." Billionaire Akhmetov had already seen his business empire shattered before the war by eight years of fighting in Ukraine’s east after pro-Russian separatists took over swaths of territory there. Since Russia's invasion on Feb. 24, Metinvest has announced it cannot deliver its supply contracts. While Akhmetov's financial and industrial SCM Group is servicing its debt obligations, his private power producer DTEK has restructured its debt portfolio, he said. Akhmetov said he had remained in Ukraine since the war with Russia began, adding: "We believe in our country and believe in our victory."
So Russia Gets Its Money Back
The discussion about money is becoming acutely much more necessary as leadership of central banks and political leadership in governments have begun to condition the public for the stark likelihood that some or all the approximately US$340 billion in funds controlled by the Central Bank of the Russian Federation which have been frozen in countries (approximately US$38 billion in the United States) will be returned. Reasons that the frozen funds may be defrosted include concern that unrelated conflicts in the future could find one government weaponizing the financial cryostasis process to target behavior of another government- and as a result weaken the international financial cooperative system along with weakening the United States Dollar as the global reserve currency- to avoid sanctions, countries would shift to using other currencies.
Likely too that the estimated US$200 billion in liquid and physical assets seized from individuals of Russian descent including those identified as “oligarchs” will be returned to them and efforts by governments to market yachts, aircraft, residences, artwork, and businesses will find few and hesitant purchasers willing to endure expected multi-year expensive litigation and security issues. Media reporting has financial institutions in Switzerland, including UBS and Credit Suisse, holding approximately US$213 billion in assets of individuals of Russian descent. Important to note that not all the approximately 140 million citizens residing across the twelve time zones of the Russian Federation are oligarchs and criminals and friends of President Putin.
Political leadership in Canada, EU, Japan, United States, and other countries will need to persuade their respective taxpayers this scenario makes sense:
The Russian Federation invaded Ukraine.
Governments have frozen US$340 billion in funds of the Central Bank of the Russian Federation.
Governments have frozen or have access to another US$200 billion in assets owned by individuals of Russian descent and companies owned/controlled by individuals of Russian descent.
The total US$540 billion will be returned.
Taxpayers in countries other than Ukraine and the Russian Federation will provide US$540+ billion (or more) for the reconstruction of Ukraine.
The EU continues to debate- and the debate becomes more debatable with each day of military conflict by the Russian Federation and Ukraine, as to defining its collective interests, the interests of its individual members, and how far astray the interests of its individual members may diverge from the collective interests. Primarily, the latter issues are the focus of Hungary and Poland.
Thus far, the EU is focusing on grants and loans, with the guarantees by all or some member countries, and grants provided directly by the EU, to Ukraine for its monthly operating expenses (estimated at US$7 billion) and to fund reconstruction. The European Bank for Reconstruction and Development (EBR) and the International Financial Corporation (IFC) are offering US$34 billion in loans to Ukraine. The EU continues to discuss providing support to Ukraine in the range of billions of dollars and tens of billions of dollars- while the expected reconstruction requirements for Ukraine are estimated at US$540+ billion. That leaves a meaningful gap which leads to the question- who will fill this gap? Who should fill this gap?
Like the United States, the EU collectively, and its members will be incurring debt, will be borrowing funds to provide to Ukraine- with no guarantee the funds will be repaid and likely issues with uses of the funds once distributed within Ukraine where prior to 24 February 2022, the country was rife with lack of transparency and endemic corruption.
Putin’s Next Move
Pushing out armed forces that are present is far more challenging than preventing armed forces from being present where they are not wanted.
Vladimir Putin may during the next months signal increasingly a willingness to cease efforts to expand territorial gains in exchange for cessation of globally impactful sanctions implemented against the Russian Federation and the return of approximately US$340 billion in Central Bank of the Russian Federation assets frozen by governments.
He may also unilaterally cease to expand his square footage. Simply stop moving forward and not move backward. Then begin to construct and reconstruct portions of territory in Ukraine which is occupied. If the armed forces of the Russian Federation cease advancing and the government of the Russian Federation does not seek any relief from sanctions imposed upon it, what does Ukraine and those governments supporting Ukraine do in response?
Accountability
All countries who have connectivity to the parties in the war will blame each other for what happened and for whatever unsatisfactory outcome is achieved.
Another certainty will be animosity by governments toward one another due to the political and financial minefield as to who will pay to reconstruct portions of Ukraine rather than a global assurance as to who must pay 100% of costs to reconstruct portions of Ukraine. That would be the Russian Federation.