By Nina Bachkatov
The fourth Ukraine Recovery Conference, held in Rome on 11 and 12 July, brought together Ukraine’s allies in yet another show of support for Kyiv. President Volodymyr Zelensky, in attendance once again, displayed his now-familiar ability to project optimism in the face of deepening adversity. His appeal focused on increased deliveries of military aid—especially air defence systems—and calls for further sanctions on Russia.
Despite these urgent pleas, the conference—comprising heads of state and government, international organisations, and business leaders—projected a united front committed to “the swift recovery and long-term reconstruction of Ukraine.” Yet such ambition stood in stark contrast to the realities on the ground: the war rages on, and even a ceasefire appears remote.
This particular gathering differed from the string of summits previously held under similar banners. Its context was more alarming: on the battlefield, Russia had launched unprecedented waves of drone and missile attacks on Kyiv and Western Ukraine—regions typically spared the worst. Though civilian casualties remained relatively low, the scale of destruction was vast, and the strain on the population has intensified.
Politically, the meeting occurred against a backdrop of domestic instability among Ukraine’s main allies. Within the EU, tensions flared between the European Parliament and the Commission over budget constraints and censure threats. Fragile coalition governments in France, Germany and the UK are grappling with deep fiscal challenges. Meanwhile, US politics remain dominated by the influence of Donald Trump, whose re-emergence continues to complicate Western consensus on Ukraine.
European Commission President Ursula von der Leyen announced the launch of a new equity fund—backed by France, Germany, Italy, Poland, and the Commission itself—with an initial capital of €250 million to support Ukraine’s reconstruction. But the sum pales in comparison to Ukraine’s own estimates, and the World Bank’s projection of reconstruction needs topping half a trillion dollars.
Corridor Diplomacy
While the conference yielded few policy surprises, it provided space for crucial bilateral contacts. Zelensky held a second meeting with Pope Leo XIV, who reiterated his offer to host peace talks between Ukraine and Russia—an idea previously dismissed by Moscow.
German Chancellor Merz promised additional support, initially interpreted as a commitment to supply Patriot and possibly Taurus missile systems. That interpretation was later walked back. Merz had just returned from Washington, where he had attempted to persuade Trump to endorse Senator Lindsey Graham’s proposals on Ukraine-related sanctions and Russian asset seizures. Yet such measures are unlikely to yield quick results—and may inadvertently harm Western financial systems before delivering a blow to Russia.
Zelensky also held talks with UK Prime Minister Keir Starmer and French President Emmanuel Macron. During Macron’s visit to London two days earlier, the two leaders unveiled an ambitious plan: to integrate French and British nuclear capabilities as a collective European security guarantee, and to mobilise 50,000 troops for Ukraine’s security—after a ceasefire, whenever that may come. They also announced the creation of a permanent headquarters in Paris to coordinate this “Coalition of the Willing”, with a future operational cell planned for Kyiv. Some see this as a European parallel to the US-led Ramstein Contact Group. However, both leaders face domestic opposition—even within their own parties—regarding how to fund such expansive commitments.
Despite this renewed talk of European “strategic sovereignty,” Trump remained the dominant, if absent, figure. European policymakers continue to calibrate their strategies to Washington’s mood, including by backing Graham’s sanctions. Trump, for his part, released an interview with NBC on 10 July, interpreting a NATO summit agreement from 25 June as: “We will send weapons to NATO, NATO will pay 100%, including offensive and defensive weapons.” This statement shocked European officials, given that NATO itself cannot procure arms—suggesting the financial burden may fall on EU mechanisms instead.
In Rome, Trump was represented by his envoy, Steve Witkoff, who had what Zelensky described as a “productive” discussion. Meanwhile, Secretary of State Marco Rubio held talks with Russian Foreign Minister Sergey Lavrov on the sidelines of an ASEAN summit in Malaysia. Rubio conveyed Trump’s “disappointment and frustration” over the stalled war and threatened new sanctions. Both men hinted at “new, special” peace proposals, though declined to offer specifics. Rubio then departed for South Korea, while Lavrov flew to North Korea.
A Double War of Attrition
One critical issue largely ignored in Rome was the economic strain on Ukraine’s allies—a “war of attrition” not only on the battlefield but within government budgets. The costs of defending Ukraine, reconstructing its economy, and hosting over five million refugees are mounting. Additionally, private investors holding significant portions of Ukraine’s external debt are increasingly anxious for returns after years of political pressure to accept restructurings.
Since independence, Ukraine—an industrialised country long integrated with former Soviet economies but lacking its own energy resources—has accumulated persistent fiscal deficits. With sympathy from the West and the IMF, the country refinanced itself repeatedly, issuing domestic treasury bills and accumulating international loans. By 1999, foreign borrowing had already reached $954 million.
By mid-2015, then-prime minister Arseniy Yatsenyuk warned that Ukraine faced $30 billion in external repayments over four years, and another $17 billion in internal debt. Last year, private holders of Ukrainian debt securities agreed to defer payments in exchange for higher interest rates. In July 2024, Prime Minister Denys Shmyhal announced an agreement with Ukraine’s Eurobond creditors to restructure repayments—saving $11.4 billion over the next three years and $22.75 billion by 2033. This, he said, would free funds for defence, social protection, and recovery.
However, by May 2025, Ukraine once again risked default—this time on $600 million in GDP-linked warrants—unless it paid out, which could create inequalities among creditors.
A Fiscal Tightrope
According to Shmyhal, external financing remains critical. Ukraine has secured $22 billion in external funds so far this year but estimates it will need over $40 billion annually through 2026. He presented an ambitious $1 trillion plan for recovery and modernisation over 14 years, divided into two funds. The first—the Ukraine Fund—would be worth $540 billion and financed through seized Russian assets and a special tax on Russian raw material exports. The second, a European structural fund worth $460 billion, would promote European private investment in Ukraine’s economy. Shmyhal urged European partners to co-finance Ukraine’s armed forces as part of a broader defence initiative.
Yet the EU faces its own fiscal conundrum. As it prepares to present a new multi-annual budget in the coming weeks, member states remain deeply divided over how to raise new revenues. Trump has made clear: no financial aid without direct return. Brussels now relies heavily on its bureaucratic ingenuity—repackaging, renaming, and reallocating funds in a bureaucratic “matryoshka” of overlapping promises.
A Tense Present
As the conference opened, Trump delivered a typically provocative message: “I think I’ll have a major statement on Russia on Monday (14 July).” While reportedly angered by Putin’s “bad will to negotiate, Trump nonetheless reaffirmed his “America First” stance—even in defence and security. While open to sending military aid, he remains attuned to the concerns of his military advisers, who, observing the extensive use of drones in Israel, Ukraine, and Russia, fear the prospect of a drone-led 9/11-style attack on US soil should investment in counter-drone technologies fall short.
French President Emmanuel Macron delivered his own address on 13 July, the eve of Bastille Day, casting himself as the architect of a renewed European strategic vision. He portrayed himself as the president willing to “double” defence spending, despite France’s record deficit. His message was reinforced by an unusual intervention from the head of the armed forces, who warned in a press conference that France had become “Putin’s number one target”—including through efforts to stoke internal discord.
Concerns over global instability extending beyond the Ukrainian theatre were further stoked by reports that China does not want Russia to lose the war. The remarks, attributed to Beijing during EU foreign policy chief Kaja Kallas’s visit, were first carried by Ukrainian media and swiftly denied by Chinese officials. Nonetheless, they fueled speculation about the growing alignment between Moscow and Beijing.
The Kremlin, for its part, appears to be adopting a wait-and-see posture. In response to Trump’s threats to renew military assistance to Ukraine, Putin’s spokesman struck a tone of affected calm. “We are taking it quite calmly,” he told reporters, adding, “Trump, in general, tends to use a fairly tough style and expressions.” As ever, President Putin seems content to offer his adversaries a familiar dilemma: two options, both equally unpalatable.