- The EU needs to speed up the pace of its financial aid to Ukraine.
That is the message of Kyiv as the European Union today. signed a memorandum of understanding provide €5 billion in long-term loans to the war-torn country.
The loan is the second tranche of a €9 billion package that was announced in May. But so far only €1bn of the package has been paid out, and Ukrainian officials say they need to receive the rest to sustain the war effort.
“Our finance minister is under extremely high pressure, when he sends these checks to the military, to pension funds… we have to have this money in his hands. So something like a week or several weeks of delay is simply not acceptable,” Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelenskyy, told POLITICO in an interview.
Kyiv’s criticism echoes comments by US officials, who pressured their EU counterparts over the summer to make good on their promise of financial aid to Ukraine, according to two officials with knowledge of the discussions. Asked this week about the pace of EU aid, a US State Department spokesman said: “We continue to coordinate closely with our partners to support Ukraine and hold Russia to account.”
As it is, the EU will deliver its aid in installments, with €2 billion due in mid-October, another €2 billion in mid-November and €500 million in December, an EU official said.
Disbursement of the final tranche has been stalled for months due to opposition from Germany, which has resisted offering budget guarantees to back the loans and argues for grants instead.
While Berlin has agreed to issue loans, there is still no agreement on the remaining €3bn of assistance of the €9bn announced in May, which is unlikely to be disbursed before the end of the year.
Estimated at $5 billion a month
Foreign aid is essential to help Ukraine cover a huge budget deficit, estimated at $5 billion a month. Ukraine’s economic output has been hit by 35 to 40 percent this year following Russia’s aggression, and Kyiv has been financing its operations through a combination of war bonds, money printing and foreign aid.
To date, Ukraine has received €4.2 billion in bilateral financial aid from EU countries compared to more than €10 billion from the US, according to the Kiel Institute’s Ukraine Support Tracker Tool.
The picture is even more skewed when looking at military aid, where commitments from EU countries amount to €5.6bn, compared to €25bn from the US. The UK alone provided €2bn. million euros in financial aid and 4 billion euros in military aid.
“From the perspective of other G7 members, including of course the United States, it’s very clear that Europe is ducking or, as usual, dragging its feet,” said Jacob Kierkegaard, a senior fellow at the German Marshall. United States Fund and at the Peterson Institute.
For next year, Ustenko expects Ukraine’s deficit to narrow slightly to $3.5 billion a month, thanks to the restart of some economic activities that have moved to western Ukraine.
The expectation is that the US will cover around $1.5 billion per month, with the EU expected to put up a similar amount, the officials said. The rest could be covered by an IMF program currently being negotiated and other bilateral donors.
But it is not yet clear how Brussels plans to contribute. The Commission is trying to speed up aid disbursements to Kyiv to avoid having to ask EU countries for guarantees every few months. However, the risk remains that a country’s refusal could stall the process.
“We have to work on a kind of automatism [for] how can this money be provided to Ukraine,” European Budget Commissioner Johannes Hahn told POLITICO last month.
One option, officials told POLITICO, is to amend the EU budget for 2023, which is currently being negotiated, to ask EU countries for guarantees once and for all. But the capitals have yet to approve this option.
A ‘Potemkin village’?
The difficulty of obtaining even relatively small amounts of money to cover Ukraine’s most urgent needs does not bode well for the EU’s plans to take the lead in Ukraine’s reconstruction process.
The World Bank has said that rebuilding the country after its war with Russia will cost 349 billion euros, and the EU is expected to play a major role as it has given Kyiv candidate status to join the bloc.
The European Commission has said it wants to co-lead Ukraine’s reconstruction, and in May presented options on how to do so. These include issuing new EU-denominated debt or negotiating an increase in the bloc’s multi-year budget. However, both options are controversial and require all EU countries to agree.
“Clearly there is a sense that the Commission wants to execute this … but seen from the rest of the world, it is a Potemkin village,” Kierkegaard said. “I mean, there is no money there. Not even the promised macro financial assistance.”
Since then, there has been very little concrete progress on how to raise the funds.
Some progress may be made at a conference in Berlin later this month co-hosted by Germany, which holds the rotating presidency of the G7, and the European Commission.
“Otherwise, the rest of the world will lose interest and become quite disillusioned with an EU that has once again failed to back their claims to political leadership,” Kierkegaard said.