The European Union has pledged a €35 billion loan to Ukraine to help the country with its financial needs resulting from Russia’s invasion. This loan aims to provide Ukraine with the necessary fiscal space to keep the state and economy running, while also bolstering defense capacity against Russian aggression. The EU plans to use Russia’s immobilized assets as collateral for the loan, ensuring that Ukraine’s budget is not impacted by repayments.
The idea to use Russia’s frozen assets for the loan originated from the concept of making Russia pay for the devastation caused by its invasion of Ukraine. These assets, worth around €270 billion, are predominantly held in EU territory by Euroclear. Member states have agreed to utilize the profits generated by these assets to support Ukraine’s army and reconstruction efforts. The G7 has pledged a $50 billion loan to Ukraine, with the EU contributing a significant portion of €35 billion.
Concerns have arisen about the EU’s large share of the loan and the potential risks associated with renewing sanctions against Russia. In order to move forward with the loan, the EU has proposed establishing the Ukraine Loan Cooperation Mechanism, through which windfall profits will be used to cover repayments. All allies contributing to the loan will have access to these profits, ensuring that none bear the brunt of the repayments.
The European Commission is pushing for a swift agreement on the loan as it aims to raise the €35 billion before the end of the year. The funds are expected to be disbursed gradually throughout 2025 to Ukraine. The EU plans to transfer the first installment in late 2024 or early 2025, contingent on Kyiv meeting certain policy conditions. The assistance provided will be undesignated and untargeted, allowing Ukraine to decide how to allocate the funds as needed.
One key concern is Hungary’s potential veto on the proposal to extend the renewal period for the Russian assets. However, Commission officials have stated that the veto would not impact the €35 billion loan, as long as restrictive measures against Russia remain in place. High Representative Josep Borrell has proposed extending the renewal period to 36 months to address long-term predictability concerns. The ultimate guarantee against potential financial risks will be the EU’s common budget.
Overall, the EU’s loan to Ukraine, backed by Russia’s frozen assets, represents a significant effort to support the country in its ongoing conflict with Russia. By using windfall profits generated by these assets, the EU aims to ensure that Ukraine’s budget is not affected by repayments. Despite challenges, including concerns about sanction renewals and potential vetoes, the EU is moving forward with the plan to provide much-needed financial assistance to Ukraine.
