EU clears path for EUR 18bn loan to Ukraine

Next year the EU will provide Ukraine with EUR 18bn, circumventing Hungary’s veto, the Council of the European Union announced on Saturday.

The loan to the war-torn country is aimed at short-term repairs of critical infrastructure and longer-term post-war reconstruction with an eye on future European integration.

Czech Finance Minister Zbynek Stanjura explained that “the loans will have a ten-year grace period. Member states will cover the bulk of the interest costs via external assigned revenues.”

The Council said in a statement that the proposal will be submitted to the European Parliament for its possible adoption next week.

Hungary opposed EU’s decision

After Hungary last month vetoed the initial proposal, which required unanimity, the incumbent Czech EU Council presidency redraw the plan so individual EU member states cover the loan, rather than the EU budget. 

Hungarian Prime Minister Viktor Orban’s administration, which is increasingly seen as Russia’s closest ally in the EU, says he does not oppose extending the loan to Hungary, only the structure of the arrangement. 

When EU ministers convened to discuss the loan plan in Brussels last month, Hungarian Finance Minister Mihaly Varga told journalists that Hungary will not support the aid structure due to “bad experiences with the EU taking out loans”, recalling that Hungary has yet to receive funding from the loan taken out during the Coronavirus pandemic. 

Hungarian Foreign Minister Peter Szijjarto meanwhile said Hungary is “ready to continue to support Ukraine based on a bilateral agreement,” but will “definitely not support the EU taking out a loan”. The loan the EU took out during the Coronavirus pandemic “was more than enough”, he added. 

On the EU’s series of sanctions against Russia, introduced in response to its invasion of Ukraine on 24 February, Szijjarto said “the war’s brutality is growing and the European economy, rather than the Russian, was the one brought to its knees.”

EU has backed Ukraine since 2014

The Council of the European Union said in a statement that Russia’s invasion has caused Ukraine a loss of market access and a drastic drop in public revenues, which has been accompanied by a marked increase in public expenditure to address the humanitarian situation.

The Council noted that the EU has supported Ukraine to the tune of over EUR 7bn of loans and grants from 2014-22 via macro-financial assistance operations, amongst other support instruments.

Through the EU-Ukraine Association Agreement, which came into force on 1 September 2017, the EU has shown continuous support for judicial, rule of law, business and anti-corruption reforms, to attract investment, boost productivity and raise living standards, it added.

“It is still possible that Hungary will agree,” Czech Deputy Foreign Minister Jaroslav Kurfurst told Czech Television on Sunday. Kurfurst outlined two options: if Hungary changes its stance, the EU budget will guarantee the loans, if not the other 26 EU member states will provide guarantees in bilateral deals with the European Commission.