This was short-sightedness on the part of European politicians: they simply did not suppose that the war would last for several years and have many negative ripple effects.
Another mistake, which is still not too late to correct, was that Western defense production was not immediately and substantially increased.
Itskhoki believes it is important to think about this now – not only to end the current war, but also to prevent the next one. “The US government already has several mechanisms to compensate businesses for excess production. In particular, there is the Defense Production Act
(passed in 1950 in response to the outbreak of the Korean War, it has been reauthorized more 50 times and is still in effect – TR), which was used, in particular, during the pandemic.”
“At that time, production of the simplest medical products, such as masks, and then vaccines, was needed urgently. Under this act, the state first obliges companies to produce the required products, then compensates them for the costs. This mechanism, in fact, was not used [in response to the Ukraine conflict],” says Itskhoki. “There is no reason to think that this is the last war with Putin. It is important now to make long-term decisions to reduce the very possibility of conflicts,” he concludes.Remembering the past but looking forward
Today, there is discussion about another universal mechanism to address the issue of what to do with the frozen assets of Russia’s Central Bank. Whereas the US has already made
the strategic decision to confiscate these assets, European politicians are still cautious and only ready to use the interest income from managing the assets for Ukraine’s needs. There is currently no mechanism for legally confiscating them – in other words, there is no legal basis for it.
Elina Rybakova believes that “agreements made at the end of the war should specify methods for compensating Ukraine,” while before the end of the war these reserves could be transferred to Kyiv. “Yet this is also a question of the [global] dominance of the dollar and the euro,” the expert warns – extralegal confiscation could turn other countries away from these currencies.
Another issue related to the long-term nature of the imposed sanctions, according to Oleg Itskhoki, is that their greatest effect may come in the period after Putin, when other people come to power. In this case, there could be a repeat of the 90s, when the USSR no longer existed but the consequences of the USSR’s policies fell on the new state, the economist warns.
“It will be up to the new government to rebuild the economy, and it seems to me that it is important for the West not to miss that moment and to create some kind of Marshall Plan for Russia so that the history of the 90s does not repeat itself again, when economic problems ruined the reputation of liberals and, ultimately, led to Putin’s victory,” says Itskhoki.
Will the lessons and mistakes of the past be taken into account when dealing with Russia’s aggression? Today, with the Middle East on fire, Southeast Asia anxiously awaiting China’s reaction to the Taiwanese elections and the North Korean dictator explicitly threatening to wipe South Korea off the map, this takes on added significance. “Just as the pandemic provided a signal that states were unprepared for large-scale epidemics, the war in Ukraine has provided one that states need to prepare for big wars. But if you are prepared, then there may not be a war,” Itskhoki assures.