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‘Not acceptable’: Ukraine laments delays as EU inks €5B aid deal

The EU needs to pick up the pace on its financial aid for Ukraine.

That’s the message from Kyiv as the European Union today signed a memorandum of understanding to deliver €5 billion in long-term loans to the war-torn country.

The loan is the second tranche of a €9 billion package that was announced in May. But only €1 billion of the package has so far been paid out, and Ukrainian officials say they need to receive the rest in order to keep the war effort going.

“Our minister of finance is under extreme high pressure, when he sends these checks to the military, to pension funds … we have to have this money in his hands. So something like one week or several weeks’ delay is just not acceptable,” Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelenskyy, told POLITICO in an interview.

The criticism from Kyiv echoes comments from U.S. officials, who pressed EU counterparts during the summer to make good on their promise of financial aid for Ukraine, according to two officials with knowledge of discussions. Asked this week about the pace of EU aid, a spokesperson for the U.S. State Department said: “We continue to coordinate closely with our partners to support Ukraine and hold Russia accountable.”

As things stand, the EU is set to hand out its aid in instalments, with €2 billion due in mid-October, another €2 billion in mid-November and €500 million in December, one EU official said.

Disbursement of the latest tranche been stalled for months due to opposition from Germany, which resisted putting up budget guarantees to back up the loans and argues in favor of issuing grants instead.

While Berlin has agreed to issue loans, there is still no agreement on the €3 billion of remaining assistance from the €9 billion announced in May, which is unlikely to be disbursed before the end of the year.

‘Dragging its feet’

Foreign aid is essential to help Ukraine cover a gaping budget gap, estimated at $5 billion per month. Ukraine’s economic output took a 35- to 40-percent hit this year following Russia’s aggression, and Kyiv has been financing its operations through a mix of war bonds, printing money and international aid.

To date, Ukraine has received €4.2 billion in bilateral financial aid from EU countries compared with more than €10 billion from the U.S., according to the Kiel Institute’s Ukraine support tracker tool.

The picture is even more skewed when looking at military aid, where EU countries’ commitments amount to €5.6 billion, compared with €25 billion from the U.S. The U.K. alone provided €2 billion in financial aid and €4 billion in military aid.

“From the perspective of other G7 members, not least, of course, the United States, it is very clear that Europe is hedging, or is, as usual, dragging its feet,” said Jacob Kierkegaard, a senior fellow at the German Marshall Fund of the United States and at the Peterson Institute.

For next year, Ustenko expects Ukraine’s deficit to shrink slightly to $3.5 billion per month, thanks to the restart of some economic activities that have been relocated to western Ukraine. 

The expectation is that the U.S. will cover around $1.5 billion per month, and the EU should put up a similar amount, officials said. The rest could be covered by an IMF program currently being negotiated, and other bilateral donors.

But it’s unclear yet how Brussels plans to contribute. The Commission is seeking to streamline aid disbursements to Kyiv to avoid having to ask for guarantees to EU countries every few months. Yet the risk remains that one country’s refusal can stall the process.

“We have to work on a kind of automatism [for] how this money can be provided to Ukraine,” European Budget Commissioner Johannes Hahn told POLITICO last month.

One option, officials told POLITICO, is to amend the EU’s 2023 budget, which is currently being negotiated, to ask EU countries for guarantees once and for all. But the capitals have yet to sign off on this option.

A ‘Potemkin village’?

The difficulty in coming up with even relatively small amounts of money to cover Ukraine’s most urgent needs don’t bode well for EU plans to take the lead in Ukraine’s reconstruction process.

The World Bank has said rebuilding the country after its war with Russia will cost €349 billion, and the EU is expected to play a big role given it has granted Kyiv candidate status to enter the bloc.

The European Commission has said it wants to co-lead Ukraine’s reconstruction, and in May presented options for how to do that. These include issuing new EU-denominated debt, or negotiating an increase to the bloc’s multiannual budget. Both options are contentious, however, and require all EU countries to agree.

“There’s clearly a sense that the Commission wants to run this … but looked at from the rest of the world, it is a Potemkin village,” said Kierkegaard. “I mean, there’s no money there. Not even the promised macro financial assistance.”

Since then, there’s been very little concrete progress on how to raise the funds.

Some progress might be made at a conference in Berlin later this month co-hosted by Germany, which holds the G7 rotating presidency, and the European Commission. 

“Otherwise, the rest of the world is going to lose interest and become quite disillusioned with an EU that will once again have failed to back up their claims for political leadership,” said Kierkegaard.

But hopes for a resolution are low.

“Berlin is going to be just the next step of these discussions,” said Ustenko.

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