The current €35 billion EU loan to Ukraine is regressive and may have to be repaid: Politico
On October 9, the EU Council decided to provide Ukraine with a loan in the amount of 35 billion euros (40 billion dollars), as well as the creation of a new credit mechanism to fulfill the obligations of the G7. Repayment of this loan under the Extraordinary Revenue Acceleration Loans for Ukraine (ERA) program will be made at the expense of profits from immobilized Russian assets.
The operation is tied to the political conditions agreed with the Ukraine Facility Plan, and its implementation will be monitored by the European Commission services on the basis of the Memorandum of Understanding with the Ukrainian authorities.
Although it was previously reported that these funds will be non-refundable, the publication Politico notes, that the EU loan is retroactive. This means that in the absence of earnings from Russian assets, Ukraine will be responsible for repaying $40 billion, which could be a heavy burden on an already war-torn economy.
As Politico points out in the article “G7 loan to Ukraine in jeopardy”, in June 2024 the G7 pledged to give Ukraine $50 billion to show the unity of the West, but this agreement is currently in jeopardy due to internal political and legal disputes.
One of the main problems is the six-month renewal cycle of EU sanctions. This could lead to risks that the proceeds from the immovable assets would not be available to repay the loan, which is a concern in the US as it could create fiscal risks.
Unlike other G7 countries, which offer non-recourse loans to Ukraine, the EU decided to make its loan non-recourse, which may cause additional difficulties for the Ukrainian economy and affect the position of the IMF regarding the acceptability of Ukraine’s debt.
In general, the G7 planned a unified approach to support Ukraine, but now the countries of the bloc are starting to act individually, which undermines the original idea of a joint risk-free loan. If the issues are not resolved promptly, critical financial assistance to Ukraine could be jeopardized at a time when it most needs support.
