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On Tuesday, the European Commission President Ursula von der Leyen announced that her institution proposed to the European Union (EU) to allocate 50,000 million euros in loans and subsidies for Ukraine between 2024 and 2027.
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Brussels suggests creating a “financial reserve” as part of the review of the EU’s multiannual budget for the 2021-2027 period, which will provide “perspective” and “predictability” to partners in Ukraine and should encourage other donors to contribute as well.
“The financial reserve will allow us to calibrate our financial support based on the situation on the ground because we all know that a war requires maximum flexibility on our part,” von der Leyen said in a press statement, in which she outlined the key points of the budget review.
Since the start of the war, the EU has provided Ukraine with €14.7 billion in macro-financial assistance: €7.2 billion in 2022 and €7.5 billion so far in 2023, as part of the agreed €18 billion package for this year.
If other types of assistance, such as humanitarian aid or solidarity measures to support Ukraine’s grain exports, are added to this, the total amount reaches €30 billion.
So far, macro-financial assistance has been provided to Ukraine in the form of highly favorable loans, including the waiver of interest payments, which are covered by the EU budget, in exchange for Kiev meeting conditions related to economic stability, the rule of law, anti-corruption efforts, good governance, and energy.
The new aid package, which needs to be approved by the member states and the European Parliament, foresees an annual amount lower than the agreed €18 billion for 2023, despite Ukrainian Finance Minister Sergii Marchenko informing his European counterparts in April that Kiev would need at least the same amount for 2024.
Member states advocate for dialogue with international institutions such as the International Monetary Fund or the European Bank for Reconstruction and Development when designing aid for the country’s reconstruction following the Russian invasion, which the World Bank estimates will cost US$411 billion.
The EU has financed its macro-financial assistance packages so far through debt issuance in the markets backed by the EU budget, in operations that also secure funding for the recovery fund.
However, since the auctions began in 2021, the cost of debt has risen from 0.09 percent in June 2021 to around 2.82 percent by the end of 2022 due to increases in interest rates in the Eurozone. As a result, the burden of interest for the EU budget, initially estimated at €15 billion until 2027, is expected to more than double during that period.
