Why Ukraine will eventually win

Giles Merritt examines the economic factors that war correspondents overlook, and sees persuasive reasons for Russia’s invasion to fail

Ukraine is going to win. Not in the dramatic sense of a military triumph, and perhaps not even by recovering Crimea and its occupied territories. Nevertheless, Russia is set to lose in ways that will handicap its prosperity and global outreach for years to come. Russians will come to curse Putin just as they once reviled Stalin.

With Kyiv and much of eastern Ukraine the targets of unprecedented barrages of missile attacks, predicting victory may seem absurdly optimistic. The mood is so gloomy that there are fears Ukraine’s allies and supporters may start to back away from their military and financial commitments.

So why the certainty that Putin’s war will backfire? It is because Russia cannot win in economic terms. Wars are won or lost for economic reasons, and the Kremlin’s ‘special military operation’ is no exception. The destruction and loss of life in Ukraine rightly dominate the headlines, but it’s the financial balance sheet underlying the military conflict that will determine the winner.

At first sight, that’s bad news for Ukraine. Both sides are suffering, but so far Ukraine has been the greater loser militarily and economically. There’s an IMF graph that shows Ukrainian GDP growth dropping vertiginously from the moment of Russia’s February 2022 invasion. At that point, four-fifths of the country’s businesses reportedly teetered on the brink of collapse. The World Bank has since reckoned physical and economic damage at getting on for half a trillion dollars, more than double Ukraine’s annual output.

With the fighting seemingly stalemated, some analysts warn Ukraine must reconcile itself to territorial losses and accept a future of inexorable economic decline. But that’s a misleading picture. Ukraine’s saving grace has been the success of its bid to become an official candidate for EU membership.

The accession negotiations are to be the decisive game-changer in the Russo-Ukrainian conflict. They contain a blueprint for the overhauling, modernisation and cleaning up of the murkier post-soviet parts of Ukraine’s economy. The prospect of EU membership, however distant that may be, ties not only Europe but market economies around the world into Ukraine’s reconstruction and development.

Coming within the EU’s ambit is far more significant in the longer-term than would have been Ukraine’s impossible and very dangerous dream of NATO membership. As well as Brussels’ promised €50 billion assistance package over four years, the trade and investment opportunities will be huge.

The Kyiv government is aiming to attract $400 billion in inward investment over the next few years. It is holding out to multinational corporations the lure of handsome profits in the modernisation of its farm sector, and is also aiming to become the EU’s major supplier of ‘clean’ nuclear energy. The battered remnants of its largely outdated iron and steel plants are seen as comparable to the conditions in which Germany’s engineering sector rose from the ashes of World War 2.

There’s a long way to go, of course, with existing foreign investment having shrunk to some $50 billion in value since Russia’s invasion. On the plus side, there’s a comprehensive array of tax credits, much scrapping of red tape and risk guarantees by international lenders like the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRF). Ukraine is reeling from the war’s impact and the emigration of six million people, but its educated and well-skilled workforce has also discovered a national purpose that’s a magnet to investors.

Russia’s outlook is, by contrast, much less rosy. Its oil and gas will continue to sell on international markets, sanctions notwithstanding, but energy is a much less potent ‘weapon’ now that Europeans and others are weaning themselves off Russian suppliers.

More fundamental still to Russia’s wellbeing is the state of its economy and the shrinkage of its workforce. The abrupt militarisation of peacetime industries is an echo of the ‘Great Patriotic War’ against the Nazis, but in reality a wartime economy that is one third devoted to defence signals plummeting living standards. Russians are condemned to guns before butter.

Russia’s birthrate never recovered from World War 2, when 23 million mainly young people died. Its present population of 145 million was anyway forecast to drop to around 100 million by mid-century, and now its Ukraine war casualties are aggravating that. With each ratcheting upwards of conscription, Putin is hastening the day when Russia will be so weakened that its globe-circling landmass becomes geopolitically unstable.

Ukraine, too, has demographic vulnerabilities. But it’s much smaller, in some ways better resourced and, thanks to Putin, backed by a formidable array of allies who know they cannot afford to let Ukraine lose. Kyiv’s victory won’t be tomorrow, but come it inevitably will.

The views expressed in this Frankly Speaking op-ed reflect those of the author and not of Friends of Europe.

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