EU agrees €1 billion in aid for Ukraine, €8 billion still to be released

EU agrees €1 billion in aid for Ukraine, €8 billion still to be released

Two months after the European Commission proposed urgent macro-financial assistance of up to €9 billion to ensure the solvency of the Ukrainian state, EU finance ministers gave the go-ahead on Tuesday ( 12 July), to the granting of financial assistance of one billion euros, covered by the EU budget.

The rest of this macro-financial assistance, proposed last May, is still under discussion and may not be decided before the autumn of this year.

“The continuation of material and financial assistance is not an option, but our duty”said Zbyněk Stanjura, the Czech finance minister who chaired the meeting of EU finance ministers for the first time on Tuesday.

Keeping the Ukrainian government afloat

The Russian invasion of Ukraine, which began on February 24, led to the collapse of parts of the Ukrainian economy. According to the International Monetary Fund (IMF), the Ukrainian government needs about 5 billion euros per month to stay afloat.

The billion euros on which the bloc’s finance ministers agreed on Tuesday therefore covers Ukraine’s short-term financing needs for about six days.

In May, the Commission offered urgent macro-financial assistance of up to EUR 9 billion — raising the question of why, two months later, only EUR 1 billion could be agreed uniquely.

“We are waiting for the specific proposal from the Commission”said an EU official, adding that EU finance ministers are unlikely to formally discuss additional macro-financial assistance for Ukraine until the fall.

Budget limits and disunity

This delay is not only due to the technical task that the EU executive has to carry out to organize the funds, but also to the limits of the EU budget and the disunity of the Member States.

The first billion can be disbursed because 70% of the subsidized loans granted to Ukraine are guaranteed by the EU budget. However, the EU budget has reached its limits and cannot be used to guarantee the remaining 8 billion.

“The exceptional nature of this macro-financial assistance stems from the specific circumstances of the war in Ukraine, which require a provisioning rate under the Union budget of 70%, as opposed to a rate traditionally set at 9%”a spokesperson for the EU executive told EURACTIV.

To provide additional macro-financial assistance, the EU therefore needs Member States to commit to providing additional financial guarantees. And there, the discussions become not only technical, but also political.

“There are discussions about who is pledging how much and whether previous commitments could be taken into account for these new pledges”said another EU official.

Is Germany in the way?

According to a media report Corriere Della Sera, Germany is currently holding back the support package. Citing sources in Brussels and Kyiv, the report says Germany is reluctant about the common borrowing scheme the European Commission is considering to finance the package.

The German Ministry of Finance has neither confirmed nor denied these allegations. Earlier this year, German Finance Minister Christian Lindner came out against common EU borrowing.

“The communitization of an instrument financed by debt which is then granted in the form of a subsidy” is not an option, Lindner said.

However, he also said that the only way to fund a model of “borrow to lend” to help Ukraine would be for member states, not the EU, to issue guarantees for their own contribution. This is what exceptional macro-financial assistance to Ukraine would look like in essence, but as it will probably be subsidized, it is not a normal loan to Ukraine.

Like the other member states, Germany is still waiting for the European Commission’s proposal on how to finance the remaining 8 billion euros.

“As soon as this proposal is available, it will be evaluated by the Member States”a spokesperson for the German finance ministry told EURACTIV.

A spokesperson for the EU executive told EURACTIV that the Commission intends to “soon to submit an appropriate proposal for the rest of the exceptional macro-financial assistance to Ukraine”.

“The associated technical work on this second part of the package is in progress”said the spokesperson, adding that the Commission “worked hard to progress as quickly as possible”.

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