The EU’s €50 billion for Ukraine is basically nothing

BRUSSELS ― The ink is barely dry on the EU’s deal to send €50 billion to Ukraine. Already it looks like chicken feed.

With the country’s financial needs growing by the day as its intractable war with Russia drags into a third year, the West — and Europe in particular — is facing up to the uncomfortable truth that it’s going to be on the hook for a whole lot more. 

The EU thought it could at least rely on the U.S. to make a substantial contribution to keep Ukraine on life support. But President Joe Biden’s inability to push a package of $60 billion of military aid through Congress not only leaves the war-ravaged country in the lurch right now, but is a portent perhaps of what a Donald Trump presidency might bring. That merely compounds fears in EU circles that the bloc will need to shoulder the bulk of Kyiv’s costs. 

While the EU's €50 billion is earmarked for deployment over the period until 2027, the International Monetary Fund puts Ukraine's funding gap at more than $40 billion this year alone.

For Kyiv, one of the biggest risks is that a shortfall in aid would be likely to pressure it down the inflationary path of printing significant sums of new money.

Right direction

Last week’s EU deal, at the second attempt after Hungarian Prime Minister Viktor Orbán blocked the agreement in December, was celebrated as an endorsement, eventually, of the bloc’s commitment to its neighbor. European Commission President Ursula von der Leyen hailed it as “what it means to stand with Ukraine for as long as it takes.”

Leaders’ relief after their Brussels summit was palpable. But officials acknowledge that nobody is popping champagne corks. It’s nothing other than a “step in the right direction,” Gabrielius Landsbergis, the foreign minister of Lithuania, which borders the Russian exclave of Kaliningrad, told POLITICO. 

The EU’s €50 billion comes from its central budget, and while that scarcely makes a mark on the €1.074 trillion the bloc has in its coffers over a seven-year period, finding spare cash in a pot meant for everything from subsidizing farmers to building roads, is notoriously difficult.

“Everyone realizes that €50 billion is not enough,” said Johan Van Overtveldt, a Belgian conservative who chairs the European Parliament’s Budget Committee. “Europe realizes that it needs to step up its efforts.” And by that, he means finding money from elsewhere.

World Bank estimates put Ukraine’s long-term needs for reconstruction at $411 billion.

History is watching

On Tuesday, Biden blamed Trump for the failure of a bipartisan bill that includes the cash for Ukraine, amid accusations that Republicans were bowing to pressure from the former president.

“History is watching,” Biden said in a White House address on Tuesday. It’s “just what [Russian President Vladimir] Putin wants.”

Biden added that Trump, the frontrunner for the Republican nomination for this year’s U.S. election, had “done nothing at all but reach out to Republicans in the House and the Senate and threaten them and try to intimidate them to vote against this proposal.”

While the legislation, which is wrapped together with tougher immigration laws and funding for Israel and Taiwan, hasn’t been completely sunk yet – a first vote is scheduled for Wednesday – the signs are that it will flop. It’s likely to have been the final opportunity for the Biden administration to approve financing for Kyiv before America goes to the polls in November. 

“2025 is very insecure for Ukraine,” said Svitlana Taran, of the European Policy Centre think tank in Brussels. “Especially with U.S. elections” if it results in a Trump victory.

Self-sustaining

Back in Brussels and in Europe’s most important national capitals, thinking is now turning to alternative ways to drum up the money. There’s a recognition that at some point Kyiv may have to learn to stand on its own two feet, said Matteo Patrone, a top official working on Ukraine for the European Bank for Reconstruction and Development (EBRD), a public lender.

“Ukraine needs to become more self-sustaining going forward as it cannot continue funding half of its budget through external financing,” he said. 

One plan to raise the cash, being explored by the U.S. and other countries, is to confiscate assets worth over €200 billion that were frozen mainly in the EU since Putin’s invasion.

According to supporters, this route would offer long-term guarantees to Ukraine because, unlike contributions from the EU’s budget, it does not require unanimity among the bloc’s 27 countries for it to go ahead.

But it’s beset by difficulties. It’s already opposed by the bloc’s three biggest countries – Germany, France and Italy – because they’re worried about the legal and financial consequences, including scaring eurozone investors, and that it would prompt Putin to retaliate with cyber-attacks.

The G7 group of industrialized nations are considering a softer proposal to use these assets as collateral for bank loans that can finance Ukraine’s reconstruction, according to officials involved in the proceedings.

Van Overtveldt, the Belgian lawmaker, backs this plan. It would allow the EU to immediately hand out fresh cash to Ukraine, without diverting resources from domestic priorities, he said.

If this plan bore fruit “then the reality is that the Ukrainian army is shooting the Russian army with ammunition that actually Mr. Putin is paying for,” he said.

Financial mayhem

Kyiv relies on Western loans and grants to cover essential social expenditure, such as salaries for public servants, and medical and educational workers.

Brussels and Washington have been Ukraine’s biggest financial backers, each handing out €27.5 billion and €22.9 billion between the start of the Kremlin’s invasion on February 24, 2022 and the end of last year.

This year, planned funding looks sufficient. But the amount the EU will give to Ukraine between now and 2027 could decrease annually.

International financial bodies raised the alarm that a halt to Western support to Ukraine would spell disaster for the war-torn country.

Odile Renaud-Basso, the head of the EBRD, said there was “a real risk” that crumbling foreign support to Kyiv might result in soaring inflation.

Gavin Gray, the IMF's mission chief to Ukraine, has repeatedly warned Western allies that pulling the plug from Ukraine would trigger financial mayhem.

But Europe's politics is difficult. The EU’s budget commissioner Johannes Hahn told reporters in December that "a majority of member states were also crystal clear in different discussions that" deals to fund Ukraine that weren't coupled with agreements on European spending in other areas "would also not be acceptable."

During negotiations in December, government chiefs including French and Italian leaders Emmanuel Macron and Giorgia Meloni insisted that support to Ukraine could not be separated from extra funding for domestic priorities such as migration, according to several EU officials.

The politics is messy and fraught with difficulties ― whether Trump ends up in the White House next year or not.

Those tensions will reopen the biggest fault line of them all in the EU: Between those who argue Russia must be defeated, and those who want to end the war, even without a Ukrainian victory. For now, the latter camp is little more than a whisper in the corridors of power, but their voices are set to grow louder as the bills mount.