Outlier or not? The Ukrainian Economy’s Preparedness for EU Accession

Already facing over $400 billion in reconstruction costs in 2023 and an ongoing war, Ukraine confronts seemingly insurmountable economic challenges for EU accession. In the EU, doubts about enlargement are growing, fueled by the prospect of integrating a vast country many perceive to be poor and corrupt with a large agricultural sector. Even without compensating for war damages, Ukraine’s financial burden of aligning with the EU is significant. Questions on how the processes of joining the European Union and rebuilding can be integrated with each other are imminent.

In a significant policy shift, the European Council granted Ukraine EU candidate status in June 2022, following the European Commission’s recommendation. One and a half years later, on December 14-15, 2023, the EU member states will have to decide on next steps in EU-Ukraine relations based on the Commission’s 2023 enlargement report.

For the Ukrainian people, the path to EU accession is the important light at the end of the tunnel, though there may be unclear perceptions about what this entails: Over fifty per cent of Ukrainians surveyed in September/October 2023 by Kyiv’s Rasumkov Centre believe that their country will join the EU in 2-6 years. This is an assumption that we contextualise in our study, based on concrete data and comparison. Croatia, the last country to enter the EU, joined a decade after formally applying.

Data-driven comparison across time

In our new study, Outlier or not? The Ukrainian economy’s preparedness for EU accession, conducted together with the Vienna Institute for International Economic Studies (wiiw), we analyse Ukraine’s situation vis-à-vis those of the countries of the CESEE region (Central Eastern and South Eastern Europe) at the time of their application for EU membership or EU accession.

Based on the economic dimension of the Copenhagen Criteria, we explore whether there are really factors about the Ukrainian economy that make EU accession uniquely challenging. We look into the European Commission’s regular enlargement reports, focusing primarily on the economic aspects of the fundamentals of the accession process, i.e. standard macroeconomic, fiscal, trade, financial and labour market indicators that are quantifiable across time.

Our aim is to contribute to the understanding of the underlying point-of-departure for Ukraine in its ability to prepare for and cope with the pressures of EU membership in comparison to its peers from CESEE. Our approach also allows us to highlight Ukraine’s economic strengths and vulnerabilities, to be utilised and further developed or addressed in the processes of reconstruction and deeper integration.

The result of our comparison is mixed but encouraging

In economic terms, Ukraine is unlikely to overburden the EU. If Ukraine were to join the Union today, the EU’s economic output would increase by 1 per cent and its population by 9 per cent – a similar effect to Poland’s accession to the EU in 2004.

In many ways, Ukraine’s economy is at a similar level of development as Romania when Bucharest applied to join the EU. On its path to EU accession and as an EU member, Romania’s economy has developed significantly and caught up with those of previously richer EU countries.

Mapping Ukraine’s potential and vulnerabilities

Some areas of the Ukrainian economy are already competitive, especially information and communication technology and agriculture. Ukraine’s enormous potential in the green and digital sectors could drive its economy’s convergence with the EU in the coming years.

A strategic dilemma: Survival, rebuilding and EU accession at once

Ukraine’s road to recovery and EU integration faces the dichotomy of addressing immediate needs versus long-term sustainable transformation. Essential emergency aid and infrastructure repairs must be balanced with “building back better” and modernising Ukraine’s economy. The latter so that disparities are reduced as Ukraine prepares for entry into the Single Market. Moreover, Ukraine, unlike previous EU joiners, is integrating into a Union that is itself under pressure to adapt and reform in unprecedented ways.

For Ukraine, it is essential to overcome an old weakness and attract FDI like the Central and Eastern European (CEE) previous joiners did. However, it must go its own way in a changed situation with different value chains. In line with its considerable potential and with EU support, Ukraine should take advantage of the opportunities offered by the twin transition, such as capitalising on its strength in digital and leapfrogging several stages in green technologies.

Institutions and business environment

Another major challenge Kyiv must find solutions for is strengthening its institutions and civil servants’ integrity. In our study, we address the institutional part in so far as it relates to the business environment, looking at how rule-of-law and corruption map onto the economy. For rule of law reforms specifically, comparisons with previous EU joiners Latvia, Lithuania, Slovakia, Romania, Bulgaria and Croatia highlight that ten years is a realistic estimation for the necessary transformations to take hold.

What fuels optimism for speedier change is Ukraine’s vibrant civil society and expert community, both actively participating in politics and reforms. Moreover, Ukraine possesses a robust educational infrastructure, well-equipped to support and adapt to transformative changes.

Synergies between the accession process and reconstruction

Finally, our study shows that utilising the accession process to stimulate economic growth and modernisation today can directly contribute to transformative rebuilding. Ideally, Ukraine’s reconstruction and economic restructuring for EU accession go hand in hand.

Based on our findings and projections, the EU accession path can serve as a critical catalyst, enabling Ukraine’s economy to emulate the convergence success of EU-CEE countries with a focus on green and digital development. Breaking the cycle of weak FDI attraction, systematically approaching rule-of-law reforms and addressing long-term demographic challenges, exacerbated by the war, will be key. Our results show that there is room for optimism that with political will and dedication in Ukraine and the strategic support from the EU the named challenges can be overcome.

Download the full study: Outlier or not? The Ukrainian economy’s preparedness for EU accession

About the author

Miriam Kosmehl has been Senior Expert Eastern Europe with the Bertelsmann Stiftung’s “Europe’s Future” Program since 2017. From Berlin, she works primarily on the Eastern Partnership region, since 2022 with a particular focus on the strategic management of global interdependence.

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