The European Union has approved a €35 billion loan for Ukraine, to be repaid through interest on frozen Russian assets. This unique repayment method is aimed at funding Ukraine’s critical infrastructure and defense needs. The Russian foreign exchange reserves frozen in the EU amount to around €210 billion, with estimated annual windfall profits of between €2.5 and €3 billion. Svitlana Taran, a researcher at the European Policy Centre, applauds the EU’s innovative approach to supporting Ukraine.
In June, the G7 countries reached an initial agreement to collectively provide Kyiv with €45 billion by the end of the year, with the EU and the US pledging €18 billion each. However, the EU ended up increasing its financial commitment due to Washington’s condition of extending sanctions against Moscow. There is a concern that if the sanctions on Russian assets are not extended, the future income flows for repayment may be disrupted. The EU is pushing to renew these sanctions every 3 years instead of every 6 months for greater stability.
The US is also wary of any Member State blocking the sanctions, as it could jeopardize the plan. Hungary has already indicated it will delay any changes to the sanctions until after the US presidential election, potentially using this as leverage in future negotiations. The final loan amount of €35 billion is not set in stone, as other G7 countries may increase their contributions. The United States may consider providing additional funds after the elections, but there are no guarantees.
Kyiv will have the freedom to allocate the funds as needed, with President Zelensky stating that the money will be used for urgent infrastructure rebuilding, air defense, and bomb shelters. The next step in the process is for the European Parliament to ratify the agreement, giving the green light for the loan to be disbursed. Overall, the EU’s loan to Ukraine marks a significant step in supporting the country in its time of need and strengthening ties between the two entities.
