EU cash for Ukraine: The bloc agrees on a €5B weapons fund

BRUSSELS — Months of deadlock over reimbursing EU countries for military aid to Ukraine was broken Wednesday after ambassadors agreed to back a new €5 billion fund.

The deal creates the Ukraine Assistance Fund — part of the EU's off-budget European Peace Facility (EPF) that is used to partially reimburse member countries for the weapons they provide to Ukraine. The outlines of the deal were first reported by POLITICO on Monday.

"We made it" the EU's top diplomat Josep Borrell tweeted. "The message is clear: we will support Ukraine with whatever it takes to prevail."

Wednesday's agreement brings the EPF to €17 billion, of which €11 billion is allocated to Ukraine with the rest going to other regions like Africa. So far, the EPF has paid out €6.1 billion for Ukraine aid.

There is an expectation that the Ukraine Assistance Fund will get another €5 billion next year.

The cash is desperately needed by Kyiv — especially with U.S. aid being blocked by partisan squabbling in Washington — but it took weeks of negotiations to finesse objections from France, Germany and Hungary.

Berlin wanted direct aid to Ukraine to be deducted from contributions to the EPF — which made political sense for Germany as it is by far the EU's largest donor of military gear to Kyiv. Germany was also miffed that countries were donating old equipment to Ukraine and then dinging the fund for the full value of brand new replacement kit.

Germany's request sent shockwaves through Brussels. Since Berlin is the largest payer to the EPF (contributions are set by the size of GDP) many diplomats worried it would zero out Germany's payments to the EPF and potentially mean the end of EU military help for Ukraine.

In the end Berlin, which had the support of the Czech Republic, partially walked back its request. Instead of demanding a 100 percent rebate, it will agree to a level below 50 percent, according to two diplomats.

France, backed by Cyprus, held up an agreement by insisting that the fund be used to reimburse only EU-made equipment — part of its effort to boost the bloc's arms industry. Nordic and Baltic countries, as well the Netherlands and Italy, argued that Ukraine's desperate need for arms and ammunition meant there should be some flexibility for a "Buy European" provision.

The final deal foresees that, in the medium term, joint procurement from within the bloc would become the norm but there would be flexibility in the interim period. The text, seen by POLITICO, does not set an end date for the interim period. That's crucial for efforts like the one being led by the Czech Republic to buy 800,000 artillery shells from outside the EU to rapidly send to Ukraine.

"After months of diplomatic tug-of-war, we can finally give a much needed boost to military aid to Ukraine, with enough flexibility to send them what they need, when they need it" said an EU diplomat

Getting an agreement also meant figuring a way around resistance from Hungary — the EU's most pro-Russia member.

Hungary agreed to use constructive abstention — meaning sitting out the final vote so that the measure isn't blocked — which allowed the Ukraine Assistance Fund to be created. Despite that, Budapest is still blocking €500 million of EPF reimbursements. 

The formal adoption of the measure will take place at a meeting of EU foreign ministers on Monday, said the Belgian Council presidency.