The EU will loan Ukraine €35 billion, repaid through interest on frozen Russian assets in a novel approach aiming to fund Ukraine’s urgent infrastructure and defence needs.
The European Union has given the go-ahead to raise a loan for Ukraine of up to €35 billion.
While the 27 member states have already granted financing to Kyiv on several occasions, the repayment method for this loan is novel, as it’s meant to be gradually repaid from the interest on Russian assets frozen at the start of the Kremlin’s all-out invasion of Ukraine in early 2022.
These Russian foreign exchange reserves amount to around €270 billion, of which €210 billion is frozen in the EU. The windfall profits generated are estimated at between €2.5 and €3 billion a year.
Svitlana Taran, a researcher at the Brussels-based European Policy Centre think tank, welcomes the EU’s “creative” mechanism for supporting Ukraine.
Under an initial agreement reached in June, the G7 would collectively grant Kyiv €45 billion by the end of the year. The EU and the US each planned to contribute €18 billion.
In the end, the EU put more money on the table because Washington made its participation conditional on an extension of EU sanctions against Moscow.
There is a risk that at some point the sanctions against Russian assets will not be extended,” Taran told Euronews. “So future income flows from Russian assets may be disrupted”.
‘Nothing is guaranteed’
These sanctions are voted on unanimously every six months, but the EU would like to renew them every 3 years for greater stability.
The US also fears that any Member State blocking the sanctions could derail the plan.
For its part, Hungary has already declared that it would put the brakes on any change to the sanctions regime until after the US presidential election.
According to Taran, Hungary could then use this blockage as “a means of future negotiation with EU members and perhaps also with the US President.”
The figure of €35 billion is not definitive. The EU could reduce its participation if other G7 countries step up to the plate.
“The United States, for example, could consider a supplement for the second half of the year following the elections, but nothing is guaranteed,” Kristine Berzina, managing director of northern geostrategy at the German Marshall Fund, told Euronews.
Kyiv will be free to decide how to use these funds.
“According to the Ukrainian president, this money would be used to cover Ukraine’s urgent needs to rebuild its energy and other essential infrastructure, as well as for air defence and bomb shelters”, Taran explained.
The ball is now in the court of the European Parliament, which in turn must ratify the agreement.
