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EU Elections 2024 Spotlight: The Ukrainian Factor

February 29, 2024
By Magnus Franklin, Benoit Cormier & Tomas Vitas

Russia’s full-scale invasion of Ukraine in February 2022 was a major geopolitical shock that challenged the political, economic and social fundamentals of the European Union.

Coming on the heels of the Covid-19 pandemic, the war prompted major disruptions to energy and food supply chains, thereby exacerbating inflation and deepening the cost-of-living crisis within the bloc. Having now entered its third year, Russia’s aggression against Ukraine continues to have multiple direct and indirect effects on the everyday lives of EU citizens and will provide an important backdrop for voters in the European Parliament elections scheduled for June 2024.

Geopolitical Tensions and the EU’s Role in Supporting Ukraine

Concerns about Russia’s geopolitical ambitions beyond Ukraine and uncertainty about the reliability of the United States as the main security provider have prompted debates about Europe’s own defense capabilities. Ukraine's fate is seen as an existential risk by many Member States, particularly those on the frontlines. Ukraine's ability to withstand Russian encroachment is a major concern for the EU’s Eastern frontier – from Finland to Romania to the Baltics and Poland. Most notably, Finland and Sweden asked to join NATO in 2022 and 2023, respectively, which was unthinkable before Russia’s escalation. Now, EU institutions and Member States intend to dedicate a specific Ukrainian Assistance Fund (UAF) within the European Peace Facility, the very instrument that allowed Europe to provide critical military equipment to Ukraine.

Following the Commission’s recommendation, the European Council decided to open EU accession negotiations with Ukraine in December 2023. This was a landmark political decision reflecting the geopolitical impetus in Brussels to accelerate socio-economic development, the rule of law and security in Ukraine and across Europe.

Despite a long pathway towards EU membership, the beginning of the talks offers the Ukrainian public some optimism about the country’s future at a time when the continuity of external support for Kyiv is becoming increasingly uncertain. Politically, accession talks will put Kyiv on a long-term reform pathway overseen by Brussels and could become a unifying objective for pro-Western political forces in Ukraine.

The Role of Businesses in Ukraine's Reconstruction

Ukraine's post-war reconstruction presents vast opportunities for European – and other – businesses. Back in March 2023, the World Bank estimated post-war reconstruction would cost more than USD 410 billion over a decade, and this figure is likely underestimated. At the same time, Ukraine offers strategic advantages for businesses seeking to expand their footprint in the region, benefit from a skilled workforce and access new consumers. In particular, the agriculture, logistics, infrastructure and defense sectors present compelling investment opportunities ripe for growth and optimization. The refurbishment of infrastructure in sectors ranging from transportation to energy promises to unlock enhanced logistics efficiency, facilitating the movement of goods and streamlining trade.

Teneo hosted an event in Brussels on 22 February 2024 – marking 10 years since Russia’s annexation of Crimea and two years since the full-scale invasion of Ukraine – to showcase how the private sector can invest in and strengthen Ukraine's recovery. Anna Jarosz-Friis, Director of the Commission’s Ukraine Service, provided a state of play of the EU's support through a four-year economic assistance program for Ukraine, structured into three pillars focusing on state support, investments, loans and capacity building. She stressed the importance of reforms to bring Ukraine closer to the EU and the need for further growth to finance the state and social services. Also speaking at the event, Arnoldas Pranckevičius, Ambassador of Lithuania to the EU, discussed the necessity of additional assistance from EU Member States, highlighting the approval of the 13th sanctions package and the importance of the European Peace Facility for facilitating ammunition delivery to Ukraine. He also highlighted that Lithuania, one of the frontline nations and a member of both the EU and NATO, has spent 2% of its GDP on Ukraine's reconstruction, including the rebuilding of Ukraine’s energy infrastructure. For context, the Baltic states are leading globally in terms of percentage of GDP spent on supporting Ukraine’s reconstruction and resistance. However, in terms of absolute numbers, the support received from Germany and Poland dwarfs what was received from the Baltics due to the respective sizes of economies.

The support going towards Ukraine – which culminated with the opening of accession talks in December 2023 – means a closer integration with the EU market. This has, in turn, led to an increase of imports from Ukraine, most notably agricultural products, and has thus increased competition that the EU businesses have to face. For example, the Government of Poland secured the EU’s concession to limit food exports from Ukraine in January 2024 after months of backlash from the Polish agricultural sector. However, despite some export restrictions imposed by the EU and its member states, Ukrainian exports rose in certain areas. In the 12-month period of October 2022 to September 2023, compared with the same period one year earlier, the shares for imports from Ukraine of sunflower oil, maize, rape or colza seeds and wood increased, while shares for soya bean oil and iron and steel decreased.

A New Ukraine Facility

With the Ukraine Facility, the EU has also made clear that it intends to bolster Ukraine's recovery efforts and strengthen its path towards EU accession beyond its immediate defense. With an initial allocation of EUR 50 billion for 2024-2027 , the facility aims to provide funding and predictability for Ukraine's reconstruction initiatives, mostly focused on macro financial support. It will also support critical sectors, starting with infrastructure, with investment and technical assistance to ensure the Ukrainian economy survives and thrives. Additionally, the Ukraine Facility encourages private sector involvement, offering opportunities for businesses to contribute to the reconstruction of critical equipment and investment in key economic functions. By leveraging this facility, businesses can not only contribute to Ukraine's development, from damaged connectivity infrastructure to building defense capabilities, but also tap into new markets and partnerships, driving mutual growth and prosperity.

At the strategic level, the European defense industry has started to invest in Ukraine, increasing the capacity of European defense companies to meet both Ukrainian and European needs. This bolsters regional security in the short and medium terms while cultivating independent defense capabilities. Examples include planned investments by the likes of Rheinmetall, the EU’s largest ammunitions maker, as highlighted by Serhiy Tereshko, Deputy Head of the Mission of Ukraine to the European Union, speaking at our “Rebuilding Ukraine” event in Brussels this February.

Transatlantic Cooperation and Elections

This year, elections on both sides of the Atlantic will shape the future of EU/U.S. relations, which are essential for Ukraine’s resilience and security. As recent history has shown, Russian attempts to interfere in electoral processes cannot be ruled out, whether directly or indirectly targeted against Ukraine and the EU’s involvement in the ongoing conflict.

While Ukraine is fighting a war at home, European voters will shape history for years to come when they take to the polls this June. The future of Ukraine is a pivotal issue of the European electoral campaign, injecting a sense of urgency in the political discourse on security at the EU level. The ongoing conflict in Ukraine also accentuates the significance of addressing trade relations between the EU and Ukraine and Ukraine's capacity to defend its sovereignty. This is perceived as a top priority for EU member states, especially those bordering Russia. The results will directly shape the EU's stance on further support to Ukraine, as it needs the continuous backing of the EU to fight the war against Russia while also preparing its future. These elections will not only determine the direction of economic assistance and defense cooperation with Ukraine but also reflect the EU's commitment to upholding international norms and regional stability. As voters weigh their options, the question of Ukraine's relationship with the EU becomes emblematic of broader debates surrounding European economy, unity, security and global influence.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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