German Marshall Plan or Russian Morgenthau Plan for Ukraine?

German Marshall Plan or Russian Morgenthau Plan for Ukraine?
Berlin's Brandenburg Gate after the Nazi capitulation in WWII.
By Nick Allen in Warsaw March 4, 2016

As 'Ukraine fatigue' builds in the West with every cabinet resignation, legislative impasse or sidestep on reform, there is talk in Germany of a 21st Century 'Marshall Plan' for the floundering country, involving a package of resources and initiatives to fix its broken economy and institutions.

"We have been working on a new strategy for Ukraine's stabilisation and development together with the Ukrainians, with much greater financial and political efforts. This is something new, and it will supplement the [Ukraine-EU] Association Agreement," Hans-Georg Wellmann, head of the German-Ukrainian parliamentary group in the Bundestag, told Sevodnya newspaper. For now, the new strategy "is just being elaborated, it has not been incorporated into official policy", he stresses in the March 1 interview.

And the price tag for restoring Ukraine's economy, management, judiciary, shattered infrastructure and industry and other wreckage? 

"We think that Ukraine needs at the end of the day an amount of money between €100bn-200bn to recover and get restructured," Wellmann later told the Kyiv Post.  "The money is there. It is not a problem; the problem is reforms of course," he added.

But where 'there' is remains unclear. Neither German taxpayers nor the EU are likely to accept such a staggering investment in a country whose leaders dally with obligations as they fancy, once their partners start handing over the cash.

Grand reconstruction notions and Ukraine's hopes of EU accession and its "European destiny" also appeared to get shot down two days later by European Commission head Jean-Claude Juncker, harshly and unexpectedly. Speaking in The Hague, Juncker said: "Ukraine will definitely not be able to become a member of the EU in the next 20-25 years, and not of Nato either."

Flipside of Marshall

The original Marshall Plan was a programme of aid to Europe after World War II, proposed in 1947 by US secretary of state George C. Marshall and coming into effect in April 1948. In less than four years, the US ploughed $13bn into Western Europe, including in Germany, about $100bn in today's money, to help create a buffer against Soviet Communism.

By contrast, the Morgenthau Plan, proposed in 1944 by then US treasury secretary Henry Morgenthau Jr. for Allied-controlled post-war Germany, envisaged removing its ability to wage war by eliminating the armaments industry, removing or destroying industrial plants and equipment, and ultimately creating a mainly agricultural country.

With some parallels and reversals, the build-up vs. break-down pattern now applies again to Ukraine, sandwiched between the EU and a resurgent and expansionist Russia. President Vladimir Putin even went as far as naming the Donbas region of eastern Ukraine 'Novorossiya' (New Russia) in the early stages of the Moscow-backed insurgency, during which much of this industrial heartland was laid to waste by rebels and Ukrainian government forces. Russia may not be seeking the systematic elimination of Ukraine's industry, the heart of which lies in the Donbas, but its fuelling of the conflict has had much the same result.

"Around 25% of the country's industrial potential has stopped, around 10% has been physically destroyed," Ukrainian President Petro Poroshenko said a year ago.

This also hamstrings Kyiv's efforts to sell itself as a stable partner for the EU, where fear of Russian aggression has rapidly spread since Ukraine's pro-Moscow government was ousted in 2014. Russia has responded with a military build-up at the fringes of the EU, and with direct – if strenuously denied – military support to the Donbas separatists.

The West says there can be no removal of economic sanctions against Russia until full implementation of the February 2015 Minsk II accords, which stipulate the return of Ukraine's eastern border to Kyiv's control. But with Russia emboldened by its success in outsmarting the West in Syria, concessions towards completely ending the Donbas conflict are receding and the likelihood of it remaining a constant destabiliser of Westward-looking Ukraine is growing.

"Europe is Ukraine's destiny"

The mooted 'Marshall Plan II' will be international and any aid should come under "a strong conditionality" with a very detailed plan and an institution which "must come here, and control the implementation of certain reforms", Wellmann said.

"If this 'Marshall Plan' ever starts working, that will happen only under full control and monitoring [by Germany]. Europe is Ukraine's destiny," he added, in remarks that are not completely isolated in the Ukraine discourse of the past two years. American billionaire George Soros also called on the EU to expand its €11bn aid project to Ukraine to €50bn, arguing that "the new Ukraine is the most valuable asset that Europe has".

But the EU and US have consistently underestimated the Ukrainian establishment's resistance to change a status quo that grants them privilege, wealth and effective immunity from prosecution.

Even as Poroshenko and the cabinet came under renewed public pressure in February to clean up governance and push forward reforms agreed with the International Monetary Fund (IMF), there was another reminder of the latent rot. A controversial 'law 3755' concerning the electronic income and asset declarations of state officials was rushed through the Verkhovna Rada parliament. Effectively enabling officials to hide ill-gotten gains by transferring ownership to their children and other close relatives, the bill was protested by the EU and will now be reviewed again in mid-March.

At the same time, Rada Speaker Volodymyr Hroysman, who is tipped as one possible replacement for the ever more unpopular Prime Minister Arseniy Yatsenyuk, resolutely declares: "The reforms should start with us, the parliament, and with the cabinet of ministers in order to change Ukraine and take on challenges." 

This all vigorously undermines international faith in Ukraine to put any grand rebuilding funds to good use, and "just how to implement such a plan amid the ongoing political and judicial disorder is quite elusive", wryly notes Zenon Zawada of the Concorde Capital brokerage in Kyiv. "It's clear that Ukrainian politicians aren't capable of doing it."

Fighting fatigue

"Wellman's suggestion of 'full control and monitoring' implies a government of technocrats," Zawada goes on. "Yet the West is having a hard enough time getting American-born Finance Minister Natalie Jaresko appointed as prime minister, and keeping professionals like [the now resigned economy minister] Aivaras Abromavicius in place in the Cabinet amid all the corruption. In essence, the West recognises that the Ukrainian oligarchy and its political tentacles needs to be replaced, but it doesn't know how to do it."

Talk of a giant German-led rescue plan for Ukraine publicly emerged as 40 Ukrainian MPs, political party leaders, and parliamentary committee leaders were in Brussels for a 'Ukraine week' of discussions with EU officials about the country's future. Or as Odesa-based blogger Nikolai Holmov put it: "grazing upon EU canapes for 3 days whilst attempting to keep Ukraine high upon the European agenda, and dispel creeping 'Ukraine fatigue'."

But ears in Brussels are rapidly tiring of hearing the same refrain about commitment to reforms, and keeping Ukraine high on the agenda is a real concern – and not just for the Ukrainians. Asked whether Europe was tired of the political situation in Ukraine, Wellmann also said that Germany "did not want that to happen".

Prime Minister Yatsenyuk is also aware of the inherent weaknesses in banking solely on foreign credits to kickstart the country's recovery, having helped secure the now jeopardised $17.5bn loan from the IMF a year ago. Even before the current souring of Ukraine's relations with the Fund, Yatsenyuk said at a conference in April 2015: "This is not working. The best Marshall Plan is investment in Ukraine."

Russia's plan for Ukraine, meanwhile, still seems more destructive than constructive. Artillery exchanges persist in the Donbas, and on March 2 Russian prosecutors pushed for a 23-year jail term for Nadezhda Savchenko, a Ukrainian helicopter pilot being tried in the southern Rostov region for allegedly contributing to the deaths of Russian journalists in the Donbas fighting.

"I think if Moscow was serious about moderating tensions with Ukraine, and the West, Savchenko would see leniency over her case. Not much evidence of that herein," commented Timothy Ash, head of emerging markets strategy at Nomura International.