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

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

Basic moral values and historical precedent demand that the defeated aggressor should pay for the war in Ukraine. Some advocates argue that reparations should start immediately by seizing an alleged $300bn of Russian government assets frozen in western financial institutions.

However, sovereign governments’ extensive international legal protections mean such a seizure will be difficult to implement, especially as several G7 nations remain embroiled in often frivolous historical disputes over second world war reparations and are unlikely to take unified action. A more viable approach may be to pursue payment during any comprehensive peace settlement between Ukraine and a defeated Russia, as with time these funds can be released by the Russian government to their just purpose. 

A peace agreement will take time, though, and Ukraine needs funds now. Fortunately, history shows ingenious ways in which an engaged public can be tapped to support a just cause. It is time for a European People’s 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 commands direct financial support from the public. In the first world war, the US federal government’s Liberty bonds and the UK government’s war bonds showed the power of patriotism as investment advice to retail investors. As large majorities of Europeans support financial aid to Ukraine, and as Kyiv’s needs increase, the EU and individual European countries should directly tap their populations’ goodwill towards Ukraine. Europe should follow Canada’s lead and issue European People’s Bonds for Ukraine directly targeted to European retail investors.

The war in Ukraine is entering a critical phase. Tough fighting remains but there is hope that the reconstruction and economic normalisation of large parts of the country, untouched by direct warfare, can now accelerate. Western powers’ supplies of heavy weapons underscore their faith in Ukraine’s fighting prowess and ultimate victory. It is therefore appropriate to begin the planning for the full reconstruction of Ukraine. As the EU has agreed to open membership negotiations with Kyiv and the US provides most military support, the bulk 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 €18bn to support the Ukrainian economy this year, of which it is planned to raise about €10bn in the form of “EU bonds”, as part of the European Commission’s total bond issuance of €80bn in the first half of 2023. The commission relies on a primary dealer network of 41 banks to market EU bonds to a broad institutional investor base. Now it should use public support for Ukraine to expand its investor pool and include retail investors.

Last year the Canadian government showed the way. It issued a five-year C$500mn Ukraine Sovereignty Bond, in denominations as small as C$100, targeted to retail investors through a network of 10 Canadian financial institutions. The proceeds from the bond go directly, via the IMF, to supporting Ukraine. But investors purchase the equivalent of a normal Canadian government bond, backed by Ottawa’s AAA rating and upon maturity to be repaid by the Canadian government.

As the commission already issues green bonds, there is no technical obstacle to Brussels arranging with its primary dealers — many of which have large retail bank operations in Europe — to market an EU-backed European People’s Bond to individual European investors. The commission should announce this initiative for Ukraine now.

Of course, all common European debt is politically controversial, and some member states’ governments and treasuries may dislike a European institution adopting the traditional sovereign state characteristic of issuing debt to retail investors in a time of war. If so, individual member states should themselves replicate the Canadian retail bond for Ukraine idea. The proceeds from such national People’s Bonds could then be pledged bilaterally to the Ukrainian government or other recipient entities in Ukraine. Alternatively, like the Canadian bonds’ proceeds routed via the IMF, they could be earmarked as a direct voluntary member state contribution to the EU budget for Ukraine. 

European publics remain resolute in their support for Ukraine’s just cause. European governments and the EU should give them an additional direct channel to contribute financially to Kyiv’s victory and Ukraine’s reconstruction via European People’s Bonds.