EU agrees €90B lifeline for cash-strapped Ukraine

BRUSSELS — Ukraine’s war chest stands to get a vital cash injection after EU envoys agreed on a €90 billion loan to finance Kyiv’s defense against Russia, the Cypriot Council presidency said on Wednesday.

“The new financing will help ensure the country’s fierce resilience in the face of Russian aggression,” Cypriot Finance Minister Makis Keravnos said in a statement.

Without the loan Ukraine had risked running out of cash by April, which would have been catastrophic for its war effort and could have crippled its negotiating efforts during ongoing American-backed peace talks with Russia.

EU lawmakers still have some hurdles to clear, such as agreeing on the conditions Ukraine must satisfy to get a payout, before Brussels can raise money on the global debt market to finance the loan — which is backed by the EU’s seven-year budget.

A big point of dispute among EU countries was how Ukraine will be able to spend the money, and who will benefit. One-third of the money will go for normal budgetary needs and the rest for defense.

France led efforts to get Ukraine to spend as much of that as possible with EU defense companies, mindful that the bloc’s taxpayers are footing the €3 billion annual bill to cover interest payments on the loan.

However, Germany, the Netherlands and the Scandinavian nations pushed to give Ukraine as much flexibility as possible.

The draft deal, seen by POLITICO, will allow Ukraine to buy key weapons from third countries — including the U.S. and the U.K. — either when no equivalent product is available in the EU or when there is an urgent need, while also strengthening the oversight of EU states over such derogations.

The list of weapons Kyiv will be able to buy outside the bloc includes air and missile defense systems, fighter aircraft ammunition and deep-strike capabilities.

If the U.K. or other third countries like South Korea, which have signed security deals with the EU and have helped Ukraine, want to take part in procurement deals beyond that, they will have to contribute financially to help cover interest payments on the loan.

The European Parliament must now examine the changes the Council has made to the legal text. | Philipp von Ditfurth/picture alliance via Getty Images

The text also mentions that the contribution of non-EU countries — to be agreed in upcoming negotiations with the European Commission — should be proportional to how much their defense firms could gain from taking part in the scheme.

Canada, which already has a deal to take part in the EU’s separate €150 billion SAFE loans-for-weapons scheme, will not have to pay extra to take part in the Ukraine program, but would have detail the products that could be procured by Kyiv.

Next steps

Now that ambassadors have reached a deal, the European Parliament must examine the changes the Council has made to the legal text before approving the measure. If all goes well, Kyiv will get €45 billion from the EU this year in tranches. The remaining cash will arrive in 2027.

Ukraine will only repay the money if Moscow ends its full-scale invasion and pays war reparations. If Russia refuses, the EU will consider raiding the Kremlin’s frozen assets lying in financial institutions across the bloc.

While the loan will keep Ukrainian forces in the fight, the amount won’t cover Kyiv’s total financing needs — even with another round of loans, worth $8 billion, expected from the International Monetary Fund.

By the IMF’s own estimates, Kyiv will need at least €135 billion to sustain its military and budgetary needs this year and next.

Meanwhile, U.S. and EU officials are working on a plan to rebuild Ukraine that aims to attract $800 billion in public and private funds over 10 years. For that to happen, the eastern front must first fall silent — a remote likelihood at this point.

Veronika Melkozerova contributed reporting from Kyiv.