EU governments scramble to help fill €70bn gap in Ukraine funding

A fresh loan backed by the European Union’s common budget seems to be the most likely way to help plug a €70-billion hole in Ukraine’s wartime budget next year, Tánaiste Simon Harris has said.

EU states will be asked to cover two-thirds of the shortfall Ukraine is facing, meaning governments will have to jointly find about €45 billion for Kyiv in the coming weeks.

Officials in Brussels are drawing up a paper on the various ways EU governments might help finance Ukraine’s defensive war that began when Russia invaded in early 2022.

Another loan, similar to a €90-billion support package agreed late last year, was “obviously one of the central options we are assessing”, Valdis Dombrovskis, European commissioner for the economy, told reporters on Monday.

Ukrainian president Volodymyr Zelenskiy has said Kyiv is facing a €70-billion hole in its budget for 2027. There was an expectation that EU states would cover two-thirds of this, or about €45 billion, Dombrovskis said.

The latest scramble to shore up Ukraine’s financial position comes as negotiating teams from Kyiv and Moscow meet in Abu Dhabi this week for US-brokered peace talks, the first such discussions in months.

Officials from Europe plan to be in the Emirati capital, although they ‌are not expected to take part in the trilateral ​format.

Diplomats have painted a bleak picture of the situation in Ukraine. While the front has largely stabilised, making major breakthroughs unlikely, they say Russia has shifted tactics toward systematically targeting energy infrastructure in an effort to trigger a nationwide winter blackout.

European governments have been Ukraine’s primary financial backer since aid from the United States dried up around the start of Donald Trump’s second presidency.

Last December EU leaders agreed to borrow €90 billion, against the bloc’s common €1.2 trillion budget, for a loan to keep Ukraine funded for two years.

However, Kyiv has been burning through funds quicker than expected.

Ukraine is racing to mass produce the military-grade drones that dominate the battlefield, as well as secure supplies of scarce Patriot air defence interceptors to shoot down incoming Russian missiles.

Constant aerial bombardment by Russia has compounded the difficulties facing Ukraine’s economy by making it much harder to export grain.

Speaking in Brussels, Harris said any additional EU loan should be framed as guaranteeing “European security”, rather than handing money to Ukraine.

“If anybody thinks that this is a war happening over there, way over there, and it doesn’t affect us, I think that’s naive in the extreme,” the Irish finance minister said.

The previous loan was backstopped by €210 billion worth of Russian central bank assets that have been held in European financial institutions since the start of the war. The Russian state’s cash has been frozen, or “immobilised”, by the EU’s regime of economic sanctions.

The €90-billion loan was designed so that Ukraine would only repay the money after Russia paid reparations for the destruction its invasion caused.

European governments believe that in the event Moscow refuses to pay compensation to Ukraine, they will be able to recoup the money from the sanctioned Russian assets.

“If Russia is not paying reparations, it means we have explicitly foreseen that then the [European] Union reserves the right to use Russian sovereign immobilised assets,” Dombrovskis said.

Two-thirds of the previous loan was earmarked for weapons and defence spending, and the remainder put into Ukraine’s national budget.

Three countries led by governments reluctant to send aid to Ukraine – Hungary, Slovakia and Czech Republic – secured opt-outs from the loan plan, ensuring they would not cover interest repayments or provide national guarantees.

German chancellor Friedrich Merz has complained the responsibility of financially supporting Ukraine was “distributed unevenly” and some EU countries were not pulling their weight.

In a November 6th letter to European Council chair António Costa, Merz said closing Kyiv’s budget shortfall would require a “collective commitment” from all 27 member states, “without exception”.

The letter, seen by The Irish Times, called for the EU leaders summit in Dublin this Friday to discuss Ukraine’s financing needs “as a matter of priority”.