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The European Union (EU) is preparing to extend up to €40 billion in new loans to Ukraine by the end of the year, independent of US participation, following a setback in a G7 initiative to use frozen Russian assets to support Kyiv.
This independent effort arises from concerns in Brussels that Hungary may obstruct the bloc from enacting the necessary safeguards required by the US for the frozen asset plan, according to sources involved in the discussions.
Hungarian Prime Minister Viktor Orbán, the EU’s most pro-Russia leader, has sought to postpone a decision on the frozen assets proposal until after the US presidential election on November 5.
However, Brussels must begin working on an alternative within the coming weeks as the current powers enabling such measures will expire at the end of the year.
The allocated funds aim to support Ukraine’s financial stability in the face of a $38 billion financing gap in 2025, as reported by Kyiv and the International Monetary Fund (IMF). Ukraine depends on international aid to sustain operations amidst increasing Russian attacks on its infrastructure.
A draft legal proposal, seen by the Financial Times, indicates that the EU will raise an unspecified amount in loans for Ukraine by the end of 2024.
This initiative, expanding an existing aid program, only requires majority support rather than unanimous agreement, effectively bypassing Budapest’s veto power.
The final loan amount could range from €20 billion to €40 billion, to be determined by the European Commission in consultation with member states, according to officials.
An EU official remarked, “We could always go on our own,” emphasizing the need for an alternative plan if Budapest maintains its veto until the US election.
G7 leaders had previously agreed in June to provide a $50 billion loan to Ukraine, repayable using future profits from approximately €260 billion in frozen Russian foreign reserves, mostly housed at Euroclear, the Belgian central securities depository.
Under this G7 plan, the EU and the US would each contribute around $20 billion, with the remaining $10 billion divided among the UK, Japan, and Canada.
To ensure consistent loan servicing, the US demanded safeguards ensuring the ongoing freezing of Russian assets, primarily located in Europe.
In response, the European Commission has suggested extending the EU’s sanctions immobilizing Russian assets from the current six-month rolling period to 36 months for greater legal certainty, with another option to extend the sanctions by five years.
Nonetheless, Orbán, who has previously vetoed EU support to Ukraine, is currently blocking this extension, reported individuals briefed on the matter.
A Hungarian government representative informed EU ambassadors in Brussels that the issue should be revisited after the US election, according to two sources briefed on the conversation.
As a fallback, the EU is now considering issuing the loans as part of an existing financial support package set to expire at year-end. This alternative would involve increasing the bloc’s total borrowing, backed by the EU budget.
If the Biden administration cannot approve the G7-originated $20 billion loan close to the election, the EU plan would cover some of this shortfall. Brussels remains hopeful that the US will eventually contribute, thereby reducing the EU’s financial exposure.
Should Brussels decide to issue the loans unilaterally, it needs to initiate the legislative procedures within weeks to meet the necessary deadlines, given the impending expiration of the Ukraine support package.
“It is urgent to adopt the proposals before the end of October so that the Union loan can be released before the end of 2024 for future disbursements in tranches,” stated the proposal.
The proposal plans to utilize proceeds from frozen assets, estimated at €2.5 to €3 billion annually, for loan repayment. Presently, these profits are directed to Ukraine via the EU budget.
