The author is European Director of the Trilateral Commission. Most recently, his book “The Transatlantic Illusion. The New World Order and How to Hold Our Own in It”.
(Photo: Imago, dgap)
The costs of the Ukraine war are increasing, while at the same time the corona pandemic and energy crisis are limiting the budgetary leeway of many supporter countries. The result is likely to be a transatlantic conflict. Because the escalating US government deficit and the forthcoming increase in the debt ceiling have a high price – the Europeans will have to pay for the reconstruction of Ukraine.
Americans have been living beyond their means for decades. In the 1990s, after the end of the Soviet threat, they were still able to reduce their enormous military spending and benefit from a “peace dividend”, but the situation has changed fundamentally since the turn of the millennium: the high expenditures for the “war on terror”, whether in Iraq , in Afghanistan and Syria, were mainly financed with loans.
This also applies to civilian spending to overcome financial and economic crises. The US government has now accumulated a mountain of debt of 31 trillion dollars. In the future, more and more money will be lacking, for example to cover the costs of state health care, which is rising sharply as the population ages. In addition, the exit of baby boomers from the labor market is likely to drive up spending on the Social Security pension program.
Republicans: No blank checks for Kyiv
However, the less financial leeway the USA has, the more difficult it will be to find negotiated political solutions. This is all the more true as Democratic President Joe Biden faces a Republican majority in the House of Representatives. Its leader, Kevin McCarthy, will focus primarily on obstruction, especially since he is dependent on the Trumpist wing in his faction. The 15 ballots required for his enthronement showed that.
The United States is once again experiencing a bitter dispute over raising the debt ceiling. The hard-core Republican fiscal conservatives will use the looming “fiscal abyss” to massively cut spending – not least on aid to Ukraine – intended by President Biden and the Democratic-controlled Senate. McCarthy had already threatened during the election campaign that he would no longer want to issue “blank checks” to Kyiv. But that increases the financial pressure on Europe.
With a view to supporting Ukraine against Russia’s incursion, US calls for “equitable burden-sharing” are likely to grow louder. After the Americans have so far shouldered the majority of the military aid for Kyiv, it is becoming apparent that the Europeans will have to finance the lion’s share of the economic and reconstruction aid for Ukraine. The reconstruction of the devastated country is likely to cost more than the 350 billion dollars previously estimated by the European Commission – and contrary to the opinion of parts of the EU bureaucracy, these costs cannot be paid for by assets confiscated from Russian oligarchs.
Debt dispute in the EU
So what to expect? The European Union could be forced to take on a larger amount of joint debt for the economic and investment program in Ukraine in addition to the previous Covid-19 aid package of 750 billion euros. However, such an approach would be highly controversial within the EU – the US demand for “fair burden sharing” is therefore likely to carry the fungus into the European Union and weigh heavily on the transatlantic relationship.
There is also another aspect: Statements by top Chinese politicians indicate that the People’s Republic, one of Ukraine’s largest economic partners, also wants to support the country’s reconstruction with massive loan aid. That would suit the EU, if only to conserve its own financial resources. Beijing’s strategy of simultaneously improving Sino-European relations with aid to Ukraine therefore has a chance of success.
Such a development would be a thorn in Washington’s flesh. The US sees the rivalry with Beijing as the decisive geopolitical conflict of the 21st century. Relaxation in the Sino-European relationship thus amounts to growing tensions in the transatlantic relationship, another breaking point in the western alliance.
The EU would be well advised to endure these tensions and assume more responsibility for itself and its neighbors in terms of security and economic policy. Because one thing is clear: After the end of Vladimir Putin’s war of aggression, an international aid program will be indispensable – if only to give the millions of Ukrainian refugees a chance to return to their oppressed country.
The author: Josef Braml is European Director of the Trilateral Commission. Most recently, his book “The Transatlantic Illusion. The New World Order and How to Hold Our Own in It”.
More: Ukraine war – the EU is facing these challenges.