EU financial support to Ukraine: gracious but painful

2 min read

The European Union is planning to provide Ukraine with an aid of 50 billion euros in the next 4 years (2024-2027). The EU is already the biggest donor of financial support to Ukraine while this title comes with a heavy and probably long-term burden for the Union.

Although we still do not see any signs of ceasing the hostilities in Ukraine, the country and its partners have already been working on the restoration of the devastation caused by the war. While the World Bank estimates that Ukraine would need 411 billion USD for the restoration, the economy of the country has also fallen with at least 30 percent since the Russian invasion began. In Brussels, leaders of the EU have seemingly decided to play a leading role in the financial support of Ukraine – even though it is not entirely capable of doing so.

The past few years have shown us what the EU means under crisis management when it comes to that in difficult times. Following the start of the pandemic in early 2020 it was the EU’s top priority to support the member states against the negative impacts of COVID-19. The Recovery and Resilience Facility (RRF) was based on an overall good idea to mitigate the economic and social impact of the pandemic. The major problem was however the fact that the European Commission had to borrow this money (around 724 billion EUR) on international capital markets. Members states should start repaying it from 2028 and it will last for 30 years (until 2058) to repay the whole amount.

Since the full scale Russian invasion has started against Ukraine, the EU has consequently worked on a project to support Ukraine, a country having a clear ambition of European integration but it is impossible to predict whether anything of that will ever come true. Nevertheless, the EU has so far provided multiple financial aids to Kyiv among which the biggest and most significant is a package of around 50 billion EUR. Leaders in Brussels have also called member states to raise the financial support to Ukraine to bilateral level. These countries now have to make serious decisions not just based on their approach to Ukraine and the war but also regarding their grave economic situation. So far we have little knowledge on how the loan will be repaid and how painful it will be for the member states.

Kyiv could only receive the money on conditions of structural reforms and anti-corruption measures. The financial aid would principally serve budgetary needs of Ukraine (among others rebuilding some critical infrastructures). Brussels’ aim with the package is also to encourage other partners to support Ukraine. In the meantime, Kyiv is understandably trying to convince other countries and entities to significantly raise the amount of support provided to Ukraine. The EU has no reason to feel embarrassed when it comes to the support of Ukraine. Even not counting the financial aid, the EU has launched training missions for the Ukrainians, it finances the supply of weapons, provides humanitarian aid while also imposed sanctions on Russia. It seems like Kyiv could barely ask for more from Brussels.

Although the course of the war is unknown at the moment (the Ukrainian counteroffensive seems rather stuck for the time being), Ukraine will certainly need more and more money as long as they live under constant attack or threat coming from Russia. It is therefore rather likely that the EU will have to look for additional ways of funding in order to not lose the money already spent on Ukraine.

The financial support of Ukraine (alongside with the RRF) can push the EU much more towards the creation of a “tax union”. Supporting Ukraine when it is struggling with a devastating war against Russia should undoubtedly be a priority of the EU, but are we actually aware of the long-term (financial) consequences of such a project?

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