This is not a polemic about whether Russia can be trusted to respect any future peace treaty with Ukraine. Nor is it a commentary on the merits of ending the war by diplomatic means. It is a reflection on the latest European paradox: While peace in Ukraine would help stem Europe’s economic hemorrhaging, the moment any peace process begins, the EU would be divided by an internal east-west fault line, which is bound to reawaken the EU’s earlier north-south conflict.
A credible peace process would require difficult negotiations involving the world’s great powers. Who will represent Europe at that high table? It is hard to imagine Polish, Scandinavian and Baltic leaders ceding that role to their French or German counterparts.
In the EU’s eastern and northeastern flanks, French President Emmanuel Macron is considered a Putin appeaser ready to impose on Ukrainians a reprehensible — to them — land-for-peace agenda.
Illustration: Constance Chou
Likewise, setting aside Germany’s long-term reliance on Russian energy, German Chancellor Olaf Scholz’s standing as a torchbearer of Europe’s collective interest has been damaged by his 200 billion euro (US$213 billion) fiscal defense of German industry — the type of tax-funded protective shield which Germany vetoed at the EU level.
Meanwhile, French and German elites pour scorn on the idea that the EU might be represented in any peace process by the likes of Estonian Prime Minister Kaja Kallas or Finnish Prime Minister Sanna Marin.
“The moral crusades of the Ukraine war maximalists are fashionable now, but they will hinder, not help, any peace process,” a German official said.
So, the question remains: Who would represent the EU in any future peace process?
Had the EU seized upon the massive post-2008 banking and debt crisis to democratize its institutions, it might be credibly represented by its president and foreign minister.
However, European citizens and national leaders would cringe at the thought of being represented by European Council President Charles Michel and High Representative of the EU for Foreign Affairs and Security Policy Josep Borrell.
Macron and Scholz, alongside almost every other European president or prime minister, would surely object.
The optimistic view in Brussels is that, despite its lack of legitimate envoys and military weakness, the EU would carry considerable weight in any negotiations because it is the economic powerhouse that is likely to pay for Ukraine’s reconstruction and be the arbiter of any process by which Ukraine joins the EU single market, customs union or even the EU.
However, is such optimism justified?
The EU would undoubtedly pay huge sums and orchestrate any post-war Ukraine accession process.
However, there is no reason to think this would guarantee the EU an influential role during the peace process.
There are good reasons to think that the EU’s role as the main funder of Ukraine’s reconstruction could divide and weaken the EU more than the crisis a decade ago.
The EU’s European Investment Bank estimates the cost of Ukraine’s reconstruction to be about 1 trillion euros — the amount of the EU’s budget in the period from last year to 2027, and 40 percent higher than its post-pandemic recovery fund, Next Generation EU.
Already hamstrung by its domestic 200 billion euro plan to shore up Germany’s collapsing industrial model, and the 100 billion euros Scholz has earmarked for defense spending, Germany lacks the fiscal space to provide even a fraction of that sum.
If Germany cannot pay, it is clear that the other EU member states would not be able to either. The only way to pay for Ukraine would be for the EU to issue common debt, retracing the painful steps that led to the recovery fund’s creation in 2020.
Pressed to deliver the cash, the EU might well go down that path, only to find it leads to vicious acrimony. EU leaders agreed on common debt during the pandemic.
However, inflation was negative at the time, and all EU members were facing an economic implosion as lockdowns killed demand across the continent.
Once peace prevails in Ukraine, they would need to agree to even more common debt to fund Ukraine’s reconstruction at a time when interest rates have quadrupled, inflation is rampant and the economic benefits to EU members are bound to be grossly uneven.
Spain is likely to question the fairness of shared debt when German companies get the lion’s share of Ukraine’s reconstruction business. Poland would protest loudly when Germany and Italy announce that, with peace restored, they would be buying energy from Russia again. Hungary would sell its acquiescence to any Ukraine fund dearly, demanding even more exemptions from the EU’s rule-of-law and transparency conditions.
In the midst of this bedlam, the old north-south — or Calvinist-Catholic — divide, on the merits of fiscal union, could return with a vengeance.
Germany already fears that France would insist on permanent, and fairly regular, issuance of common debt, which the German political class would resist, and not only because the German Federal Constitutional Court has already ruled against the idea.
The deeper reason is that the fiscal union France seems to favor would require German conglomerates to abandon a practice that is in their DNA: accumulating US assets that they purchase on the back of the large net exports to the US made possible by stagnant German wages and underpriced natural gas.
Unless US President Joe Biden’s Inflation Reduction Act changes Germany’s mindset by raising a protectionist barrier that kills off German net exports to the US, any negotiations to end the Ukraine war are bound to aggravate the EU’s east-west divide — and then reignite the old north-south divide.
None of this should be surprising. After the 2008 financial crash, the EU only papered over the north-south fault line that emerged.
The war in Ukraine inevitably produced a new east-west fault line. Once peace arrives, those fault lines would only grow deeper, uglier and impossible to ignore.
Yanis Varoufakis, a former Greek minister of finance, is the leader of the European Realistic Disobedience Front and a professor of economics at the University of Athens.
Copyright: Project Syndicate
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