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EU aims to finalise €9 billion Ukraine loan package

EU aims to finalise €9 billion Ukraine loan package

2 min. 20.06.2022 From our online archive
New assistance package to consist of 25-year loans, with EU leaders set to meet later this week to discuss how to further support country
Ukrainian President Volodymyr Zelensky and European Commission President Ursula von der Leyen meeting in Kyiv earlier in June
Ukrainian President Volodymyr Zelensky and European Commission President Ursula von der Leyen meeting in Kyiv earlier in June
Photo credit: AFP

The European Union is expected to finalise the details of a €9 billion financial package for Ukraine in the coming days to bolster the war-torn nation.

The new macro-financial assistance programme for Kyiv would consist of 25-year loans, with a 10-year grace period to reimburse the principal, three EU officials said, who added that interest payments would be covered by the EU budget.

The proposal is likely to be ready later this week, the officials said, with EU leaders scheduled to meet Thursday and Friday in Brussels to discuss Ukraine’s reconstruction plan and its bid for membership in the bloc. The aid plan would have to be approved by all 27 member states.

The European Commission first proposed the latest aid package in mid-May to cover part of Ukraine’s financial needs of around €5 billion per month. The Ukrainian government has been calling on its partners to transfer the funds as a matter of urgency, but the Commission and Germany disagreed over the package’s design.

The EU’s executive arm insisted on using a loan-based instrument, while Germany had been pushing to use grants to avoid increasing Kyiv’s debt burden. Berlin announced a €1 billion non-refundable contribution to Ukraine last May during a meeting of Group of Seven finance ministers hosted by Germany.

Some other countries, including Slovakia, also questioned initially whether loans were a better way to support Kyiv, according to people familiar with the matter. Other member states, including Denmark, asked whether offering grants would undermine the credibility of Ukraine in the markets.

The financial package needs the backing of EU member states and the European Parliament.

Another issue has been how much national governments would have to offer in guarantees to back the loans in case Ukraine defaults. The bloc will cover 100% of it, with some €8 billion provided by member states. The remainder would come from the EU budget, the officials said.

The Commission is contacting member states to finalise some details related to the guarantees but remains confident that the first disbursement will take place this summer, an EU official said. 

The bloc originally aimed to complete the plan early this month since Ukraine’s financial needs keep piling up. Under that timetable, the Commission was planning to begin raising funds in the markets next month for a first transfer, the people said.

The EU planned to transfer three or four more instalments by the end of the year, although it would depend on the availability of the guarantees and Ukraine’s financial needs, said the people, who asked not to be identified because the talks were private.

The financial package is expected to include some conditions that would take into account Ukraine’s current circumstances and be related to reconstruction efforts and avoiding the misuse of funds, EU officials said.

©2022 Bloomberg L.P.

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