Luxembourgh Times

EU to propose €1bn in immediate support for Ukraine

Short-term package will need approval from all member states

Luxembourg Prime Minister Xavier Bettel meeting Ukraine President Volodymyr Zelensky in Kyiv last Tuesday

Luxembourg Prime Minister Xavier Bettel meeting Ukraine President Volodymyr Zelensky in Kyiv last Tuesday © Photo credit: SIP

Source: Bloomberg

The European Union will propose €1 billion in short-term financial relief for Ukraine to shore up the war-ravaged nation’s urgent cash needs, as Germany continues to hold up talks on a larger package, according to people familiar with the matter.

EU officials prepared the back-up option on Thursday after the European Commission, the bloc’s executive arm, failed to secure Berlin’s blessing for a package that would entail €8.8 billion in loans. In addition to qualms over the structure of the financing, Germany is calling for grants rather than loans, the people said.

The emergency funding, which needs to be approved by all member states before it can be disbursed, comes as details of the larger package are still being worked out. EU leaders, who met this month as well as in May, had reached a preliminary agreement on financial assistance.

The commission has been pushing for weeks to get backing for the payout of the larger volume to Ukraine, whose government is struggling to keep afloat financially as the Russian invasion destroys infrastructure and chokes the nation’s economy.

But various attempts have been scuppered as Germany delays the proposal, the people said. Chancellor Olaf Scholz’s government favours grants to ease Ukraine’s debt burden and disputes how to calculate and structure guarantees, according to the people, who spoke on condition of anonymity due to the sensitive nature of the matter.

Asked about the hold-up, German Finance Minister Christian Lindner said he’d already authorized €1 billion for Ukraine, which should be taken into account as talks on additional help move forward.

“Germany should not be called upon twice,” Lindner told reporters in Berlin. “Everyone should be called upon to the extent of his or her ability.”

The EU’s larger assistance package would seek to make a “sizable” contribution toward covering Ukraine’s 2022 financing gap, which is estimated to be around $10 billion, according to a draft text of the proposal seen by Bloomberg. The commission will seek to raise funds on the market as early as this summer to fund the credit line.

The Finance Ministry in Kyiv is running out of financing options as the war drags on, leaving the country increasingly reliant on outside help. Ukrainian officials are exploring the possibility of debt restructuring as a way to lighten its burden while remaining on good terms with international investors.

The EU funds will come on top of a previous credit line of €1.2 billion given to Kyiv earlier this year. The loan program will include a 25-year maturity, with a 10-year grace period to pay back the principal, said the people. Interest costs will be covered by the EU budget and the funds would be guaranteed by the bloc’s member states in the event of a default.

Group of Seven countries have made about $20 billion (€19.3 billion) of financial commitments to Ukraine so far, according to the draft text of the proposal.

©2022 Bloomberg L.P.