Two months after the European Commission proposed urgent macro-financial assistance of up to €9 billion to keep the Ukrainian state solvent, EU finance ministers on Tuesday (12 July) gave the go-ahead for €1 billion in financial help that is backed by the EU budget.
The rest of the macro-financial assistance that was originally proposed in May remains a subject of discussion and may not be decided until autumn of this year.
“The continuation of material and financial aid is not an option, but our duty,” said Zbyněk Stanjura, the Czech minister of finance who presided over the EU finance ministers’ meeting for the first time on Tuesday.
Keep the Ukrainian government afloat
The ongoing Russian invasion, which began on 24 February, has led parts of the Ukrainian economy to collapse. According to the International Monetary Fund, the Ukrainian government needs around €5 billion a month to stay afloat.
The €1 billion that the EU finance ministers decided upon on Tuesday thus cover the Ukrainian short-term funding needs for about six days.
In May, the Commission proposed urgent macro-financial assistance of up to €9 billion – raising the question as to why, two months later, only €1 billion could be decided on.
“We are waiting for the specific proposal by the Commission,” one EU official said, adding that EU finance ministers would probably not officially discuss any additional macro-financial assistance for Ukraine before autumn.
Budget limits and disunity
The delay speaks not only to the technical task demanded of the Commission in organising the funds but also to the limits of the EU budget and the disunity of member states.
The first billion can be paid out because 70% of the subsidised loans for Ukraine are backed by the EU budget. However, the EU budget is now at its limits and cannot be used to also back the other €8 billion.
“The exceptional feature of this macro-financial assistance stems from the specific war circumstances in Ukraine, which call for a provisioning rate under the Union budget of 70%, as opposed to atraditional rate of 9%,” a Commission spokesperson told EURACTIV.
To deliver additional macro-financial assistance, the EU therefore needs member states to pledge additional financial guarantees. And here, the discussions become not only technical, but political.
“There are discussions about who pledges how much and about whether previous commitments could be counted towards these new pledges,” another EU official told EURACTIV.
Is Germany blocking?
According to a media report by Corriere Della Sera, Germany is currently hitting the brakes when it comes to the support package. Citing sources in Brussels and Kyiv, the report states that Germany is uneasy with the joint borrowing scheme envisioned by the European Commission to finance the package.
The German Finance ministry neither confirmed nor denied these allegations. Earlier this year, the German Finance Minister Christian Lindner positioned himself against common EU borrowing.
“A communitisation of a debt-financed instrument that is then awarded as a grant” is off the table, Lindner said.
However, he also said that the only way to finance a “borrow to lend” model to assist Ukraine would be if the member states, instead of the EU, are issuing guarantees for their own share. This is basically what the exceptional macro-financial assistance for Ukraine would look like, but as it is likely to be subsidised, it is not a normal loan to Ukraine.
As with the other member states, Germany is still awaiting the proposal of the European Commission on how to finance the remaining €8 billion.
“As soon as this proposal is available, it will be evaluated by the member states,” a spokesperson of the German finance ministry told EURACTIV.
An EU Commission spokesperson told EURACTIV that the Commission intended “to come forward shortly with an appropriate proposal concerning the rest of the exceptional macro-financial assistance to Ukraine.”
“The associated technical work on this second part of the package is ongoing,” the spokesperson said, adding that the Commission was “working hard to advance as quickly as possible.”
[Edited by Nathalie Weatherald]
