As Ukrainians risk their lives battling for national survival, the United States, European countries, and their allies should prepare a counteroffensive of their own against Russian aggression: a massive new European recovery program to begin operation by next year. This counteroffensive would be nonviolent, centered on economic and political reconstruction. But it would help secure a lasting Ukrainian victory. An ambitious recovery program that recalls the Marshall Plan would sustain Ukraine, make Europe more secure, brighten the future of surrounding regions, and revitalize the European project itself. That would be a real triumph over Russia’s effort to plunge Europe back into a darker age.
To give this plan credibility, Western countries should prepare to use frozen Russian assets to help fund Ukraine’s reconstruction. The UN General Assembly has already endorsed an international mechanism for compensating Ukraine for loss, damage, and injury suffered during the war, and such a plan can give Moscow another opportunity to comply with its international obligations. But one way or another, Russian President Vladimir Putin’s government, not Western taxpayers, should bear most of the costs.
Russia’s military strategy is to ruin Ukraine, outlast it in a war of attrition, and ensure that a free and growing Ukraine does not outshine Putin’s increasingly isolated and corrupt dictatorial regime. In February, the historian Stephen Kotkin told The New Yorker that the Ukrainians were not yet winning because “they need their house, and the Russians are wrecking it,” going on to describe Putin’s strategy as “‘I can’t have it? Nobody can have it!’”
Ukraine’s friends have not countered Russia’s strategy of wreckage. Ukraine lost 29 percent of its GDP in 2022. More than 13 million Ukrainians are displaced. The country’s private sector has been fundamentally damaged, and inflation is running at 27 percent.
The United States and EU countries have provided roughly $3 billion per month ($100 million per day) to keep Ukraine’s government functioning, since it cannot afford more debt. But the World Bank estimates that Ukraine will need about another $14 billion in grants just this year to meet its most urgent reconstruction needs. Over the next ten years, the World Bank reckons, Ukraine’s recovery and reconstruction will cost more than $400 billion. And neither of those numbers includes the costs of rebuilding in Ukrainian territories currently occupied by Russia. Although much assistance could eventually come from private investors, private money will follow or be secured only by very large grants of public funds. Many needs, from rebuilding infrastructure to clearing explosives, will not be addressed by private investment at all.
Russia should bear the bulk of these costs. It is a circumstance unique in history that as it launched the largest international invasion since 1942, the aggressor left the means to compensate its victims in the jurisdiction of law-abiding states. Those now frozen Russian state financial assets probably total about $300 billion. Most of the funds are held in euros, with the bulk of these EU holdings concentrated in Belgium’s Euroclear clearing house. But significant Russian financial assets are also frozen in the United States, the United Kingdom (including the Cayman Islands), Switzerland, and several other countries.
It is not right or practical to expect Western taxpayers to foot the bill for reconstruction instead of Russia. The current U.S. Congress is unlikely to be as generous as the last one in passing supplemental appropriations for foreign economic assistance to Ukraine. Transferring frozen Russian reserves to Ukraine would be morally right, strategically wise, and politically expedient.
“AFTER THE VICTORY”
Ukrainians hope their future will be very different from their past. When they look ahead to what comes “after the victory,” as they like to put it, they want political reform as well as economic progress. A recovery program partially funded by Russia’s frozen assets should be created to help get them there.
The Marshall Plan is remembered as an enormous American program that helped Western Europe recover after World War II. But it followed a large multinational emergency humanitarian effort, led by the United States, that fed and sheltered millions of starving and displaced people in Europe and East Asia, including in China. To secure freedom’s victory and give European leaders a vital role in shaping their future, the Marshall Plan linked U.S. aid, mainly spent in the United States on goods for European delivery, to European designs for political and economic recovery, reform, and cooperation.
As missiles fly and tanks roll, it is natural to give less attention to reconstruction and recovery. But the true center of gravity in this war is Ukraine’s economic endurance and prospects, along with the scale and durability of outside support. Inside Ukraine, the needs are urgent. It will still take time to stand up a massive program, with a large role for Europeans and the European Union. It took a year for the Marshall Plan to go from words in a speech to operations on the ground. Regardless of whether the fighting has stopped, a new European recovery program, centered on rebuilding Ukraine, should be up and running by 2024.
FROM SANCTIONS TO COUNTERMEASURES
Russia’s dictatorship planned its program of imperial conquest even as it stored huge foreign exchange surpluses in banks in countries now rallying to help defend Ukraine. After Russia’s February 2022 invasion, those countries promptly froze or immobilized those assets in the sanctions phase of trying to persuade Moscow to abandon its war of aggression.
That phase has run its course. There is no scenario in which Russia gets its money back while its victims go uncompensated. The countries freezing the assets could defer this problem for months or years as Ukraine’s economy dies. But such a delay would only encourage Russia to continue its war of wreckage and test Ukraine’s staying power.
It is time to move from sanctions to state countermeasures. In his treatise on state responsibility for wrongful acts, the international legal scholar James Crawford described the imposition of sanctions as an “‘unfriendly’ but not unlawful act.” By contrast, he wrote, a countermeasure “may be defined as an act of non-compliance by a state with an international obligation owed towards another state in response to a prior breach of international law by that other state . . . [Countermeasures] are taken by states acting alone (or alongside other like-minded states) to seek protection or performance of international legal rights and obligations. The measures are adopted as a consequence of the view of the reacting state that the target state has committed an internationally wrongful act.”
In other words, bank robbers should not expect banks to honor their safe deposit boxes. Except in this case, the banks are national governments with jurisdiction over sovereign accounts they would ordinarily respect. Countermeasures are acts of state that suspend this usual regard, and as a report published by the New Lines Institute for Strategy and Policy co-authored by one of us (Zelikow) points out, they have long been recognized as extrajudicial means of self-help in the international system. As long as the countermeasures are proportionate to the wrongs, they do not require judicial or arbitral processes to implement compensation.
Bank robbers should not expect banks to honor their safe deposit boxes.
Russia has already begun using state countermeasures, but against private property and in violation of international law. In April 2023, through a presidential decree, Russia began more openly taking control of foreign companies and private assets over which it has jurisdiction. This decree, first applied to companies from Finland and Germany, authorizes the Russian government to grab all private property owned by companies from countries defined as “unfriendly” because they joined in asset freezes, as all EU states did. Russia has justified this policy in the language of a state countermeasure, claiming it is “a response to the aggressive actions of unfriendly countries,” as a Kremlin spokesperson put it.
Those who oppose Russia’s aggression should proceed with lawful state countermeasures of their own, suspending their ordinary obligations toward Russian state accounts. Unlike Russia, G-7 governments and other like-minded partners would not go after private property unless its owners were surrogates of the Russian state or a court had found the basis for a civil or criminal forfeiture. But these states would transfer Russian state assets into escrow accounts not for their own enrichment but for the benefit of Moscow’s victims.
Such countermeasures would not be compulsory. As is typical, they would be handled outside the UN Security Council and the UN’s Chapter 7 processes, used for mandates and peacekeeping. But because the UN has established that Russia gravely breached the norms of international law and that this breach is a matter of common international concern, it has given member states the standing to act. And it has established that Russia has a duty to compensate the states injured by its aggression.
Ukraine’s friends have not countered Russia’s strategy of wreckage.
In parliamentary systems, state countermeasures can usually be taken through cabinet decisions or legislation. In presidential systems, executive emergency powers will likely suffice. Current American law already gives the U.S. president the power to order such transfers into escrow accounts, as President Ronald Reagan did with Iranian state funds in 1981 and President George H. W. Bush did with Iraqi state funds in 1992. Such measures do not run afoul of the doctrine of sovereign immunity, developed to shield foreign states from adjudication in other states’ courts. An act of state, moving against the accounts of another state, is different. Such acts are international political choices that are usually not reviewed by courts.
After Iraq’s 1990 invasion of Kuwait, states adopted countermeasures after sanctions failed. France, the United Kingdom, and the United States led the way in transferring frozen Iraqi state funds to an international escrow account to provide compensation without Iraq’s voluntary consent. Similarly, Russia would be induced to do its duty and compensate its victims, either voluntarily or involuntarily. The aggressor’s rights do not take precedence over the rights of its victims.
Under ordinary circumstances, Russia could seek compensation for such transfers. But under international law, Russia is not entitled to compensation if the countermeasure is proportionate and prompted by Russia’s own grave breach of peremptory norms of international law—a breach that has already been affirmed by both the International Court of Justice and the United Nations. And because the countermeasures would transfer Russian assets into escrow for the benefit of its victims, not for the transferring state’s own public use, any Russian claims could be contrasted with the rights of those injured by Moscow’s aggression.
Justice further delayed will become justice denied.
Ukraine and other countries have already begun setting up a register of damages to undertake the laborious process of recording Ukrainian losses in preparation for an international claims process—for instance, through an international commission that could issue awards. But a long, drawn-out claims process alone cannot rapidly address the broad disruption of Ukraine’s economy and society. Through countermeasures, countries that have frozen Russian assets can flexibly fashion massive programs of reconstruction and recovery while also funding a process to compensate other injured states and claimants.
Some governments may prefer to wait to pursue countermeasures until the prospects for a negotiated settlement have improved. But the process of initiating countermeasures could by itself improve the outlook for negotiations. In accordance with international law, participating countries could jointly notify Russia of their decision to pursue countermeasures and offer to negotiate with Russia as they prepare them. The G-7 could give this notice in the coming weeks and gauge Russia’s readiness to negotiate—but without facilitating Russia’s military strategy of delay and further wreckage.
Even after transfers are made to actively managed escrow accounts, executing large budgetary commitments to projects and claimants will take time. Countries may prefer to start by distributing just the income from these accounts. Nevertheless, trustees of the escrow accounts need to take control of the Russian assets in order to manage and transfer the income from those assets. By 2024, Ukraine will have been at war for ten years, the last two of which have dramatically widened the suffering and disruption. Justice further delayed would become justice denied.
DOLLAR RISK?
Some worry that transferring Russian assets would be so pathbreaking that it could scare countries away from holding large foreign exchange reserves from countries that implement countermeasures. Since the United States runs such large current account deficits and is a reliable and relatively predictable debtor, and since most international trades are settled in dollars, Treasury bonds and other dollar-denominated assets are the most available and liquid foreign exchange reserves for other countries to hold. So even though most of Russia’s frozen assets are in euros, some analysts worry that transferring them could threaten the status of the dollar in international finance. This argument understandably resonates with some bankers, who are annoyed by such political intrusions and accustomed to regarding state accounts as sacrosanct, even though they know that the accounts of ordinary outlaws are hardly untouchable.
Some long-term concerns about the dollar’s role in the world economy are valid, but a transfer of Russia’s already frozen reserves would not add much to those concerns. To begin with, the United States would be acting in concert with issuers of other major reserve currencies, such as the euro, yen, and sterling. Also, if a country such as Brazil were to shift its foreign exchange holdings from dollars into renminbi, the Chinese on the other end of that trade would then need to park those dollars somewhere, probably by reinvesting in other dollar assets, since China runs a current account surplus with the United States. Moving dollars into gold has its limits, since countries must convert it into currency to buy goods. The Chinese renminbi carries risks of its own, including China’s opaque and unpredictable governance and lack of independent rule of law.
There are other reasons to doubt that state countermeasures against Russia would threaten the dollar. In an early warning of its intentions, Russia reevaluated the political risk of its dollar holdings in 2018, apparently putting more than $80 billion into gold, nondollar currencies, and offshore dollar accounts such as those in Belgium’s Euroclear clearinghouse and the British Cayman Islands. But this move had no discernible effect on the value of the dollar, which rose during this period.
Russia has no good defense to avoid compensating those whose property it has expropriated.
Moreover, the freezing of Russian assets by Western countries in February 2022 has already delivered a shock to countries that have reason to worry about their dollar holdings. Heightened political risk is now largely priced into the asset allocations of banks around the world. Brazil and China, among other countries, have tried to move their trade finance out of dollars. But this shift has had little effect on the value of the dollar, which is still involved in nearly 90 percent of global foreign exchange transactions.
According to Colin Weiss, a specialist in international finance at the Federal Reserve Board of Governors, as of late 2022, “nearly three-quarters of the U.S. assets held by foreign governments [were] in the hands of allies.” As a result, if many emerging-market and developing economies (including major oil exporting countries) stopped using the dollar and switched to the renminbi, the net effect would be modest.
China already sells dollars to keep its currency from depreciating too low. Confronting such a shift in holdings, China might stop selling dollars and even start selling off its own currency instead to keep it from appreciating too high. The Federal Reserve itself has been selling dollar securities on a large scale as it unwinds its bond-buying program known as quantitative easing. It could, if necessary, put those policies in reverse and tighten worrisome slack.
A WARNING TO WOULD-BE AGGRESSORS
Russia may retaliate against state countermeasures. But to an extent, it already has by illegally seizing foreign-owned private property. Any further nationalization efforts would complete the painful economic divorce from Europe, North America, and Japan that Russia set in motion when it expanded its invasion of Ukraine in 2022.
Russia has no good defense to avoid compensating those whose property it has expropriated. Finland and Germany have not invaded anybody. Depending on the specifics of investment agreements, arbitration tribunals may start handing down judgments against Russia. If Russia does not compensate its victims, their claims may join others stemming from the war that could be considered by a claims process funded with transferred Russian assets. Expropriation claims could also lead to court judgments targeting still unfrozen Russian property.
In addition to Russian retaliation, some countries may fear the precedent they would set by transferring Russian assets, worrying that other aggrieved countries might nationalize foreign property as a state countermeasure to gain reparations for past wrongs. Yet this is an old issue. For generations, states have nationalized foreign properties they regard as wrongfully acquired or as legacies of imperialism. In some cases, negotiations after such seizures have eventually led to compensation. In others, they have not. Few who study what happens to countries such as Venezuela that conduct uncompensated nationalizations will wish to imitate those examples. Governments welcome or tolerate foreign investors because they believe it is in their interest to do so. They are unlikely to turn their backs on those investments, sacrificing their own well-being simply because a number of countries seized and transferred Russian assets to compensate victims of the Ukrainian war. As for more liquid financial assets, foreign states usually have jurisdiction over only the financial holdings of their own currencies. They do not have jurisdiction over accounts held in dollars, euros, yen, or sterling.
Far from a dangerous precedent, a transfer of Russian assets would be a powerful warning to other countries that may be considering wars of aggression. It would be a reminder of how costly it can be to assault global norms in a world that is still so deeply interconnected.
A new European recovery program centered on Ukraine and funded by Russian assets is not only a key to winning the peace; it is a key to winning the war and countering Moscow’s strategy of attrition and ruin. Russia left the means to sustain such a program in the hands of free countries. They should literally capitalize on that mistake.
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