European Union prepares to send €1bn in aid to Ukraine

Emergency funding needs to be approved by all member states before it can be disbursed

A building hit by a Russian missile strike in the town of Serhiivka, near Odesa, Ukraine. AFP
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The European Union has proposed €1 billion ($1.04bn) of emergency funding to help war-ravaged Ukraine tackle its cash flow problems, with Norway also announcing €1bn in humanitarian aid for the next two years.

European Commission President Ursula von der Leyen said the first part of an assistance plan “will allow us to give an immediate answer to the urgent needs of Ukraine”.

“The EU will keep on providing relief to Ukraine and in the longer-term support its reconstruction as a democratic and prosperous country,” she said in a statement on Friday.

The emergency funding, which needs to be approved by all member states before it can be disbursed, comes as details of a larger package are still being worked out.

Under the proposal, funds will be made available to Ukraine in the form of long-term loans on favourable terms, the commission said. The EU budget will cover the interest costs and the loan will be backed for 70 per cent of the value by amounts set aside in the budget.

Ukraine is struggling to keep afloat financially as the Russian invasion destroys infrastructure and chokes the nation’s economy.

Previous attempts have been scuppered, with Germany delaying the proposal, Bloomberg reported. Chancellor Olaf Scholz’s government wants grants to ease Ukraine’s debt burden and disputes how to calculate and structure guarantees.

Asked about the hold-up, German Finance Minister Christian Lindner said he had already authorised €1bn for Ukraine — which should be taken into account as talks on additional help move forward.

“Germany should not be called upon twice,” Mr Lindner said. “Everyone should be called upon to the extent of his or her ability.”

The larger EU assistance package being considered would seek to make a “sizeable” contribution towards covering Ukraine’s 2022 financing gap, which is estimated to be about $10bn, a draft text of the proposal said.

Ukrainian President Volodymyr Zelenskyy (R) and Norwegian Prime Minister Jonas Gahr Store (L) shake hands in Kyiv. AFP

The Finance Ministry in Kyiv is running out of options as the war drags on, leaving the country increasingly reliant on outside help. Ukrainian officials are exploring the possibility of debt restructuring as a way to lighten the burden while remaining on good terms with international investors.

The EU funds will come on top of a previous credit line of €1.2bn given to Kyiv earlier this year. The loan programme will include a 25-year maturity, with a 10-year grace period to pay back the principal.

Meanwhile, Norwegian Prime Minister Jonas Gahr Store visited Ukraine on Friday and announced his country's own aid package.

The fund is for “humanitarian aid, reconstruction of the country, weapons and operational support to the [Ukrainian] authorities”, the Norwegian government said in a statement.

“We stand together with the Ukrainian people,” Mr Store said. “We help support the Ukrainians' struggle for freedom. They are fighting for their country, but also for our democratic values.”

Updated: July 01, 2022, 7:28 PM