Compensation financing ends and joint debt begins. This is what the leaders of the European Union’s 27 countries agreed to at this week’s make-or-break summit.
with compensation loan permanently excludedto meet Ukraine’s budget and military needs over the next two years, the bloc will turn to common borrowing to raise 90 billion euros.
This is a simpler, faster and more predictable solution compared to the high-risk plan of exploiting victimized Russian assets. But joint debt is expensive and quickly becomes so.
Here’s what you need to know about the plan:
return to market
Since neither the EU nor its member states currently have 90 billion euros at their disposal, the Commission plans to go to the market and raise money from scratch by issuing a mix of short- and long-term bonds.
To ensure a steady flow of aid to Ukraine, the 90 billion euros will be phased in, with Ukraine needing a new tranche as early as April. The country will have the flexibility to use the funds for both military and budgetary purposes.
Meanwhile, the EU budget will absorb interest rates and avoid further burdening Ukraine, which is already heavily indebted. The European Commission estimates that under current interest rates interest payments will reach 3 billion euros per year. This means that the next EU budget (2028-2034) will need to have an allowance of around 20 billion euros.
Member countries will share the benefits according to their economic weight. Germany, France, Italy, Spain and Poland will bear the highest costs.
European Commission officials said the 90 billion euros would not be counted as national debt because the issuance would only take place at EU level.
eternal rollover
Under the non-recourse financing agreement, Ukraine will only be required to repay the 90 billion euros after Russia stops its war of aggression and agrees to pay war reparations.
Given that the Russian government has categorically ruled out the possibility of reparations, the European Commission is already preparing to extend its liability over time to avoid costly out-of-pocket costs for Ukraine after such a devastation.
“The premise is that it is currently a non-recourse loan to Ukraine and will only be repaid once reparations are completed, so this debt will be rolled over until then,” explained a senior commission official.
But will rollovers last forever?
That’s unlikely. At some point in the future, the EU will have to settle the fate of 90 billion euros in order to stop interest payments. The recourse will be the EU budget, which will act as the ultimate guarantor to ensure that investors are always repaid.
3 opt-outs
Ukraine’s joint debt was made possible because, during the summit, Hungary, Slovakia and the Czech Republic agreed to refrain from vetoing the deal in exchange for forgiveness, as Euronews first reported.
This is important because under current rules, the EU budget cannot be used to finance non-EU countries. Any changes to that effect require unanimous approval.
Hungary, Slovakia and the Czech Republic pledge unanimity. In return, the bloc plans to trigger a so-called “enhanced cooperation” mechanism to waive costs and liability related to 90 billion euros.
Twenty-four other countries will take over its interests. However, the change will be minimal as the three opt-outs represent only 3.64% of the region’s GNI.
Exemptions will also be institutional. If the budgetary provisions are amended and the “enhanced cooperation” mandate is activated, the three countries will lose the right to vote to approve provisions establishing new aid programs.
In fact, they will be strictly removed from the initiative.
With string
The European Commission plans to reuse the now abandoned reparations loan proposal to set up a €90 billion common borrowing.
As a result, Ukraine will be subject to the same conditions in order to receive funds.
One is a “no-rollback” clause linking the aid to anti-corruption measures that Kyiv must put in place to advance its EU membership bid. The country has recently been rocked by corruption scandals in the energy sector. numerous resignationsincluding that of President Zelensky’s chief of staff Andriy Yermak.
If Kiev takes a step back in its fight against corruption, as it briefly did with summer corruption; independence The payments will be suspended following the intervention of two anti-corruption agencies and sparking widespread protests.
Safeguards will also be put in place to increase oversight of how Ukraine’s defense contracts are allocated, which has been controversial in the past.
In addition, 90 billion euros will be set aside for “Made in Europe” standards to ensure the development of the domestic defense industry in Ukraine and Europe. Purchases outside Europe are only permitted if the equipment is not readily available on the continent.
Assets still under consideration
Relying on joint debt means that the cash balance of Russian assets will not be affected, as was originally planned for the reparation loan.
But EU leaders said in their conclusions that they reserved the “right” to use the assets, or at least try in the future, as a way to repay the 90 billion euros in borrowings.
“For me, it is very difficult and very premature to say today how this will translate in actual words,” a senior committee official said when asked about the meaning.
“I think this message is quite political, which means that the option of using the Russian Central Bank’s cash balance assets is not out of the question.”
Adding assets to the final text is seen as a way to appease Germany, which had been the most vocal supporter of reparations financing and had publicly rejected the idea of common borrowing.
President Zelenskiy hailed the decision as an “important victory” for his country.
“Without these funds, it would be very difficult for us. In any case, this is related to Russian reparations,” he said. “For us, this is a reinforcement. It is a signal to the Russians that there is no point in continuing the war because we have the financial support, so we will not fall at the front. We will support our army and our people.”
