As the expenses of military, economic, and humanitarian assistance have become a part of European political debates, GlobSec evaluated the economic impact of our action or support for Ukraine and the outcome of inaction in three fundamental conflict scenarios analyse by GLOBSEC.
The GlobSec analysis attempts to offer light through analysis after interacting with key European think tanks and professionals.
The study makes a purely pragmatic case for backing Ukraine. However, the authors argue that moral, legal, and ethical considerations are more essential than merely materialistic ones; more than these considerations were needed to persuade some governments and demographic strata of the importance of supporting Ukraine.
Thus, the article objectively assesses the economic costs and advantages of three conceivable paradigmatic outcomes of Russia’s war in Ukraine for Central Europe: ultimate victory for Russia, victory for Ukraine, and a frozen conflict.
GLOBSEC analysed the impact of Ukraine-Russia war on Central European nations
The paper, written by a team led by Ján Mykhalchyk Hradick, a Globsec external consultant, focuses on the impact of the Ukraine-Russia war on Central European nations. It claims that the costs of Europe’s current military and economic backing for Ukraine are significantly cheaper than the costs that the countries would face if Russia won or the conflict remained unresolved.
In the event of a Russian win, the research illustrates how increased military spending, decreased foreign direct investment, and skyrocketing debt burdens may force Central Europe into an economic abyss.
The analysis highlights the financial impact that Central Europe could endure if Ukraine is defeated, with annual expenses topping 25 billion euros for countries like Poland, nine times the amount of assistance offered among the four countries studied.
A frozen conflict will have a high economic costs for the region – report
According to the analysis, if Russia achieves in freezing its war in Ukraine, the cost to us Central Europeans will be expensive, given the inherent instability and unpredictability of such a situation. A frozen conflict may be considered a de facto win for Russia since it would consolidate its position in seized areas, create security uncertainty for Ukraine’s reconstruction process, and give Russia an implicit veto over Ukraine’s future. A frozen conflict’s financial and economic costs would be comparable to those endured if Russia won.
According to Robert Vass, one of the report’s authors, “This leads the team to conclude that the costs of our current military and economic support for Ukraine are significantly lower than the costs we will pay in the event of a Russian victory or a frozen conflict.”
As the authors state, “security, peace, and freedom have no price,” they emphasize that helping Ukraine appears to be very advantageous to the area from a qualitative standpoint. According to the conclusion, a likely Ukrainian victory would restore European stability with considerable economic and social gains and help prevent Russia and other potential aggressors from taking additional aggressive action elsewhere in the world.
Ukrainian victory, followed by membership to Western frameworks (mainly NATO and the EU), would significantly impact the economic development of neighbouring regions. Other qualitative benefits discussed in the paper include food security and the EU’s green transition.
Scenario of a Russian victory would impose enormous social and economic costs on Europe – report
A Russian victory in Ukraine will impose enormous social and economic costs on Europe. In the case of Central Europe, these expenses outweigh the assistance supplied to Ukraine. For example, the paper claims that a Russian victory would cost Poland more than 25 billion euros per year compared to a Ukrainian victory due to declining FDIs and increasing costs of debt and military expenses.
On the other hand, Poland provided Ukraine with 4.3 billion euros in financial, humanitarian, and military aid – an amount six times less than what it would cost annually to confront Russia’s victory. A comparable case can be made for Slovakia, Romania, and Hungary. The potential costs of a Russian triumph are so enormous that Central European countries’ backing for Ukraine to ensure its victory is the wisest investment they can make.
Western countries have already contributed unparalleled military, humanitarian, and financial assistance to Ukraine. Nonetheless, more focused and rapid action is required for Ukraine to succeed. Delays in military aid may result in sunk costs if Ukraine loses. The result of insufficient or late action may be analogous to the impact of no support.
The total military loss of Ukraine would be included in Scenario 1, emphasized in the report of Russian full-fledged triumph. The authors believe it is unlikely.
Protracted or frozen conflict in Ukraine would cause high risks – report
According to analysts in Scenario 2, a protracted or frozen conflict in Ukraine might be deemed a de facto Russian win. Russia would entrench itself in seized Ukrainian territory, causing uncertainty in rehabilitation and unacceptably high investment risks. Russia would gain de facto veto power over Ukraine’s destiny, causing Europe to bear unprecedented expenses.
Russia might create de facto annexation and effectively rule some Ukrainian areas in the event of a protracted or frozen conflict. With minimal success from its counteroffensive and likely decreasing Western assistance, Ukraine may be forced to seek to freeze the lines along the frontline at a specified moment, but without a formal peace accord.
Slow fighting, with intermittent attacks and long-range strikes, might continue. Russia would effectively rule Ukraine’s eastern and southern areas, incorporating them into its political and economic institutions. Under better conditions, Ukraine may try to rebuild internally. Nonetheless, it would not join the EU or NATO because of its unstable borders, the potential of a swift resumption of active large-scale fighting, and internal insecurity.
Ukraine’s frozen conflict would entail a new Russian assault
According to the research, this situation is quite likely. Though the combat does not provide Ukraine with significant advantages, the pressure on Ukraine to freeze the frontline may intensify, even though Ukraine vehemently rejects such a scenario. The fact that “the costs of supporting Kyiv would also likely drop, and public attention to the war would wane” adds to the plausibility of this scenario.
Ukraine’s frozen conflict would be explosive. This is because of ideological and historical factors associated with Russia’s aggression. Russian leaders are obsessed with Ukraine as a non-existent state. Russian tyrant Putin used this to justify the launch of the attack despite the idea’s ridiculousness from a legal, practical, and historical standpoint.
This viewpoint continued even after the invasion and proved to be a failure for Russia. As a result, even if there is a break of a frozen conflict, Putin would most likely seize the next opportunity to assault Ukraine. Russia has a lengthy history of “unfreezing” frozen conflicts when it is expedient, as in Chechnya (1999), South Ossetia (2008), and Ukraine (2014, 2015, 2022).
Frozen conflict in Ukraine would have a high economic impact on Central and Eastern Europe
Under a frozen conflict scenario, there would be a significant decrease in investment in Central Europe. Although a frozen conflict would not pose as serious investment risks as a complete Russian victory, it would increase geopolitical risks. These risks are projected to be around halfway between a Russian victory (35% decline in FDI) and a Ukrainian victory (no decrease in FDI).
The frozen conflict would reduce foreign direct investment in Slovakia by 450 million euros annually. Using the same logic, Poland would lose 4.5 billion euros per year, Romania would lose 1.45 billion euros, and Hungary would lose 1.35 billion euros.
The second possibility could reduce the need for Western military assistance before the war’s end. The estimation is problematic because some assistance would be required to avoid scenario 1. Nonetheless, the reduction would be dependent on Russian military capability. Even if the conflict is frozen, Ukraine may join the EU, but this is unlikely. According to the report, Ukraine joining the EU would bring economic benefits. At the very least, the frozen conflict will delay Ukraine’s accession to the EU by several years.
Scenario of a Ukrainian victory will bring significant benefits to Europe
A Ukrainian victory in scenario 3 would also bring unquantifiable benefits. In the European context, a Ukrainian win would be the best way to ensure Ukraine’s stability, reduce the need for NATO troops in Central Europe, and boost the economies of neighbouring countries. In a broader geopolitical context, the outcome of Russia’s war in Ukraine will significantly impact Russia’s relations with its neighbours, particularly China, Iran, and India.
Without the Russian threat, military spending might remain predictable and constant, meeting the necessary 2% minimum (as reconfirmed at the NATO Vilnius Summit in 2023). Some Central European countries currently spend more than 2% of their GDP. Still, they may be able to find higher levels unnecessary and reduce spending to the stable 2% GDP NATO minimum requirement, which will be confirmed in 2022.
The reduction in military spending will be gradual, as many countries have already contracted to purchase new equipment that will be paid for and maintained in the future years. Nonetheless, a decrease in spending is likely in the medium term.
Following the Ukrainian victory, foreign direct investment is expected to return to pre-2020 levels. This is a conservative estimate, as Ukraine’s economic development and accession to Western structures have the potential to boost the economies of the central European countries significantly. This would bring more FDI to these countries than before 2022.
With the Russian threat reduced, debt risk premiums would fall across CEE. These would drop approximately back to the levels before the war. This does not have to be the case with every particular country as other confounding external factors may raise their premiums compared to the pre-February 2022 period. Nevertheless, the savings would be in billions across the CEE.
Ukrainian victory depends on Western military aid without delays – report
There is no debate about the significance of Western assistance to Ukraine. During the opening days of the Russian onslaught, the American-supplied Javelin ATGMs were critical in slowing the Russian offensive in Kyiv. The Western political assistance and offensive weapons helped Ukraine to liberate much of the regions taken by Russian invaders.
As this study indicates in the example of Central Europe, the benefits considerably surpass all costs of bringing Ukrainian victory. Additionally, there are various other unquantifiable gains and expenses, practically all pointing to the advantages of a Ukrainian win.
The analysis concluded that the scenario of a triumphant Ukraine would bring significant benefits to the European economy and increased stability to the global order. Specifically, yearly advantages to Central European countries amount to 44 billion euros and other unquantifiable benefits. This leads to the conclusion that business-driven justifies backing Ukraine to defeat Russian aggression.
Benefits of Ukraine support and eventual victory must be communicated – report
The report concludes that to gain the most from the Ukrainian triumph and keep public support strong, officials should speed up the military aid to Ukraine, not postpone. Any delays now may imperil eventual rewards from the procedure. Support Ukraine further and faster to ensure success and assist Central European enterprises in rebuilding.
The contributors claim there is a need to convey the benefits of the Ukrainian victory through clear and understandable material advantages and examples and communicate why a Ukrainian triumph is in the interest of Central Europe. They stress that the Central European governments are not only aiding Ukraine, but they help themselves. The impact on Central European countries has been significant due to their proximity to the conflict’s heart.
Ukrainian membership in the EU and the extension of its single market would benefit the economies of the entire EU, especially major nations such as France and Germany. Furthermore, the Ukrainian win and diminished Russian threat may allow the US to focus more of its capabilities and diplomatic efforts elsewhere, particularly in the Middle East and Southeast Asia.
Source: GLOBSEC report