Risks or Money: Does the West know how to end the war in Ukraine?
According to the 'information' theory of war, any attempt to end a conflict is obstructed by uncertainty over each side’s understanding of the other’s capabilities. No less significant an obstacle is the uncertainty surrounding the terms and guarantees of a future peace.
One of the key problems today is that neither Europe, which is calling for guarantees of peace for Ukraine once hostilities have ended, nor the United States, which passively agrees on their necessity, is able to formulate even the broad outlines of such guarantees. As a result, their reliability and credibility, even if the guarantees were eventually defined, do not appear particularly strong.
In this situation, a concept is gaining traction which holds that the only truly dependable scenario is not the presence of foreign troops on Ukrainian territory, nor the obligation of allies to enter the war in the event of another Russian attack, but rather a sharp strengthening of Ukraine’s own defence capabilities. Such a plan clearly presupposes active assistance from the West.
Essentially, this scenario represents a compromise. It relieves Western partners of the direct risk of confrontation with Russia, but will require them to pay a high price for it – a kind of non-military security guarantee.
The reality is that, after the active phase of the war ends, Ukraine will face three tasks: financing its ongoing expenditure and restarting the economy, rebuilding war-damaged infrastructure, and rapidly expanding its defensive power. Achieving these goals is unlikely without substantial financial and economic support from the West.
The urgency of this problem has already pushed European governments to break the taboo on confiscating frozen Russian assets. This is an important and necessary step. Yet on its own, it does not make the plan for non-military security guarantees for Ukraine fully realistic or comprehensive. To achieve that, it will be necessary to assess the scale of the required funds, their sources and financing mechanisms, and, no less importantly, the mechanisms for overseeing their use, given the Ukrainian government’s limited capacity to curb corruption.
Between certainties and uncertainties
The space for negotiations opens up when the warring parties’ expectations about the situation on the battlefield begin to change, writes political scientist Cynthia Roberts in her article ‘Pragmatic Scenarios for Ending the Russia-Ukraine War’ in Foreign Policy (this argument develops the idea of war as a mechanism through which adversaries obtain reliable information about each other → Re:Russia: The War Equation). Today, it is perhaps possible to say that there is a certain convergence between expectations and reality in the theatre of the Russian-Ukrainian conflict, Roberts notes.
Kyiv understands that the chances of regaining all territories occupied by Russia in the near future are minimal. At the same time, Moscow no longer expects a decisive victory in the foreseeable future. Russia’s offensive is bogging down and becoming increasingly costly (→ Re:Russia: On The Eve of a ‘Decisive Breakthrough’). Domestic costs are also becoming a significant factor: the Russian population is increasingly feeling the consequences of the war, including fuel shortages caused by Ukrainian strikes on oil refineries. Budget revenues have covered about 90% of spending year after year, and are projected to cover only 80% in 2025 (→ Re:Russia: Military-style VAT). All these factors weigh in favour of halting the fighting. The war has entered a positional phase, in which neither side can hope for a swift victory. Although the Kremlin still occasionally invokes its maximalist goals, which include seizing territories it has yet to occupy, everyone understands that these ambitions must give way to a more realistic policy. But where does realism begin?
Two summits at the end of August – talks between Putin and Trump in Alaska and the subsequent meeting of Trump, European leaders and Zelensky in Washington – illustrated the structure of the diplomatic deadlock. Putin is demanding territory, while Zelensky insists that such discussions can only occur alongside security guarantees for Ukraine. Without them, any deal is meaningless. Michael McFaul, a leading expert on Russia, former US ambassador to Moscow and ardent supporter of broad American aid to Ukraine, argues in an article in Foreign Affairs that Trump mishandled the negotiations by trying to pursue two tracks simultaneously. First, an agreement on security guarantees for Ukraine must be reached between Kyiv, European countries, and the United States. Only then should a dialogue between Zelensky and Putin on territorial issues begin. Putin, McFaul insists, should not be a party to the discussion on guarantees, as that path risks repeating the failure of the Budapest Memorandum, which ultimately turned out to be a worthless piece of paper.
However, McFaul understands 'territorial issues' to mean Ukraine’s agreement to pursue the return of its occupied territories exclusively by peaceful means. Putin, by contrast, interprets 'territorial concessions' as the transfer to him of land not currently under Russian military control. Despite this difference in interpretation, McFaul’s argument is significant in one key respect: as things stand, the West does not know to what extent it is prepared to offer such guarantees — or whether it is prepared to offer them at all. Notably, discussions of the issue at the Washington meeting ended without result. The paradox is that neither the Trump administration, which is calling for an end to the war, nor Europe, which is calling for future security guarantees for Ukraine, has put forward any proposals of its own.
Unlike McFaul, Roberts does not believe in guarantees. In her view, neither the United States nor Europe inspires full confidence in this regard. It is difficult to dispute this conclusion. Today, the real question is the extent to which NATO obligations by the US and its allies can be considered truly guaranteed. Any new Ukrainian security mechanism will be created ad hoc, and its effectiveness will become clear only when a real threat of escalation arises. Despite its declarations, Europe is not psychologically or militarily prepared for war with Russia. Within the framework of information asymmetry theory, this will encourage Putin to test these guarantees, hoping to provoke divisions within the coalition responsible for upholding them.
Ukraine’s only truly reliable guarantee is its own military capability, argues Roberts. The entire course of the Russian–Ukrainian war lends weight to this argument. In the first weeks of the invasion, no one could have imagined that Russia’s obvious advantages would prove insufficient to defeat the Ukrainian army. Yet the development of military technologies has, to a large extent, neutralised the disparity in manpower. Meanwhile, Western economic sanctions against Russia, as well as the West’s economic and military support for Ukraine, have significantly reduced the gap between the two countries’ economic capacities. Strengthening Ukraine’s defensive capabilities would make the cost of a new Russian aggression unacceptably high. And then it is unlikely that anyone would again dare to assure elites, society, or the military that the war would be over in a few days, as Vladimir Putin did last time.
There is no doubt that rapidly strengthening Ukraine’s defence potential will require active Western support. Given this condition, the concept has now become mainstream — the most realistic, likely, and achievable scenario for security guarantees. Interestingly, as we noted recently, Ukrainian public opinion itself is leaning towards this vision of post-war security (→ Re:Russia: The Spectre of NATO or The ‘Steel Porcupine’). However, one major uncertainty still remains around this plan: financial and economic constraints.
How much does the ‘steel porcupine’ cost?
If we look closely at the concept of the 'steel porcupine', which means arming Ukraine to a level sufficient to repel another Russian invasion and integrating Ukrainian and European defence industries (→ Re:Russia: A Porcupine for Two), it is essentially a compromise. The West does not offer direct guarantees of military presence in Ukraine or a commitment to enter the war in the event of renewed Russian aggression. These issues repeatedly become stumbling blocks, even within the so-called 'coalition of the willing', many of whose members quickly become 'less willing'. They are an even greater source of tension between Europe and the United States. The former would like to shift a significant share of ultimate responsibility for guarantees onto Washington, while Washington, not without reason, suspects Europe of precisely this intention.
Freed from such obligations, the West, especially European countries, would nonetheless need to assume other kinds of commitments. Alongside technological assistance and cooperation on military modernisation, this would include ensuring Ukraine’s financial and economic stability. The 'steel porcupine' concept assumes that Ukraine will need to address three main tasks: rapidly expanding its defence capacity, rebuilding war-damaged infrastructure, and reviving an economy that has suffered structural losses due to the occupation of much of the Donbas and southern regions. The lack of detail on these types of non-military security guarantees is another source of uncertainty – one that could prompt Moscow to continue its expansion by various means.
The problem is acute. Without additional funding, Ukraine cannot cover its current expenditures. According to the government's plan, Ukraine’s budget deficit in 2026 will amount to just under $60 billion — and only support from partners can close the gap. After negotiations with the International Monetary Fund (IMF) this week, Kyiv raised its estimate of external financing needs for 2026–2027 from around $38 billion to $65 billion, according to sources cited by Bloomberg and Kyiv Post. A realistic assessment of these needs was a condition for the IMF’s loan approval. For example, this year Ukraine will receive a total of $54 billion. In 2026, according to the National Bank of Ukraine, only $22.2 billion has been confirmed: $11 billion through the Ukraine Emergency Assistance (ERA) programme launched by the G7 in 2024 (which will be exhausted thereafter), $7.8 billion from the European Commission’s Ukraine Facility, $2.2 billion from the IMF, and $1.2 billion from other sources. And for 2027, the only confirmed source so far is the final IMF tranche of around $1 billion. This totals $45.4 billion, to which, according to a new estimate, another $65 billion will be needed.
The severity of the problem has pushed Western countries – above all, the EU – to take a decisive step in breaking the taboo around frozen Russian assets. Plans are under discussion to mobilise €175 billion of the roughly €190 billion held at the Belgian depository Euroclear. The idea is to use funds whose investment terms have expired and which have already been converted from securities into cash. Of this, €45 billion is expected to go towards repaying a loan issued under the ERA programme, which is currently financed by income from investing Russian reserves. The total amount available will be €130 billion, or slightly less. The precise figure will be determined once the IMF publishes its assessment of Ukraine’s external financing needs for 2026–2027.
The mechanism for transferring Russian assets to Ukraine, according to Reuters, has been broadly defined. It will take the form of a so-called 'reparations loan'. The concept of a reparations loan was developed by a group of experts led by journalist and public figure Hugo Dixon. Since Russia will be obliged to pay reparations to Ukraine after the war, Dixon’s group proposed transferring part of Russia’s reserves to Ukraine now, without waiting for the war to end or for those payments to materialise. Formally, the EU would not confiscate Russian funds – a move that financiers and lawyers have strongly opposed, fearing that such a move would undermine confidence in the EU's financial system. According to Reuters, funds from Euroclear will be transferred into a special purpose vehicle (SPV) to be created by EU governments and possibly the G7 (it could be established without the participation of Hungary and Slovakia, which oppose the use of Russian reserves). Euroclear, in turn, will receive zero-coupon bonds guaranteed by the SPV’s owners, who would become liable for Euroclear’s obligations to Russia. The final decision is expected to be taken on 1 October at a meeting of European leaders in Copenhagen.
Progress on the question of Russian reserves has been driven both by pressure from Washington and, to an even greater extent, by a shift in Germany’s position. As the EU’s largest economy, Germany will have to shoulder the greatest risks. Unlike the previous government, Chancellor Friedrich Merz said back in the spring that he would support confiscation, provided a suitable legal framework could be found. According to Bloomberg, the German authorities believe that in the alternative scenario they would have to provide additional support to Ukraine from their own funds – a move that could weaken an already fragile government (in the latest polls, the Alternative for Germany party is more popular than Merz’s own).
However, the question is which authority can force Russia to pay reparations. Hugo Dixon points out that as early as 2022, a special resolution of the UN General Assembly was devoted to this issue. However, only the UN International Court of Justice has the right to award reparations, and Russia, as a permanent member of the Security Council, will almost certainly block its decision, notes The Economist. Another possible authority could be the recently created Commission for the Examination of Ukraine's Claims (CAHEC) under the auspices of the Council of Europe. In his column for The Financial Times, Merz refers to the Council of Europe’s decision to freeze Russian assets until reparations are paid. Furthermore, the issue could also be advanced by making Russia’s consent to pay reparations a condition for lifting sanctions.
Legal questions, however, are only part of the picture. The concept of guaranteeing Ukraine’s security not through direct military presence or commitments, but by turning it into a ‘steel porcupine’, will require Europe’s active financial and organisational involvement. A realistic approach is needed to meet the country’s three central needs: ongoing financing and economic recovery, infrastructure reconstruction, and the rapid build-up of military capability. For example, Chancellor Merz insists in the same column that frozen assets should be used exclusively to fund Ukraine’s rearmament, rather than to cover its current budgetary needs, thereby making them a direct investment in Europe’s collective security. Politically, this may sound appealing, but if Ukraine lacks sufficient current financing, such investments could prove useless or ineffective.
A particular challenge will be ensuring proper oversight of how funds are spent. As things stand, Zelensky’s government enjoys little public confidence within Ukraine regarding its ability to control corruption. This means that the aid itself, and especially any increase in its scale, is becoming a domestic political problem for Ukraine.