The EU is preparing a contingency plan worth up to 20 billion euros for Ukraine, using a debt-financed model that circumvents Hungarian Prime Minister Viktor Orban's objections, according to the Financial Times, writes UNN.
Details
After EU leaders earlier this month failed to agree on a proposed four-year, €50 billion aid package for Ukraine, officials began looking for alternatives if the disagreement could not be resolved, the publication points out.
"Officials involved in the talks said one debt-financed model has gained traction as the most practical way to lend support if Orban refuses to give up his veto at the planned Feb. 1 summit," the publication writes.
The model reportedly involves member states providing guarantees to the EU budget, which would allow the European Commission to borrow up to 20 billion euros on the capital markets for Ukraine next year, people briefed on the talks said. The exact terms are still under discussion and the final amount will be set according to Ukraine's needs, they added.
As noted, this option would not require guarantees from all 27 EU member states, provided that the top credit-rated countries were among the main participants. This would allow the EU to bypass Hungary's veto, as it would not require unanimous support.
Some countries, including Germany and the Netherlands, will need parliamentary approval to provide national guarantees. Officials hope that this process can be completed in time to provide aid to Ukraine by March.
If EU leaders agree to the plan on Feb. 1, the IMF will have guarantees to release the next tranche of funding for Ukraine worth about $900 million, sources briefed on the talks said.
This should provide sufficient funding for Ukraine to avoid having to resort to monetary financing, where the government has to print money to maintain the deficit, with the risk of rising inflation, they added.
One disadvantage of this model compared to the original proposal, which relies on the EU budget, is that it would be limited to loans and would not include grants. Member States could, however, decide to provide grants on a bilateral basis.
Another contingency option under consideration involves extending the financing structure used this year, under which the EU has provided Ukraine with €18 billion in cheap loans, for a period of months to a year. This option would require the agreement of most countries.
But officials emphasize that their preferred option is to approve an unchanged aid package first proposed in June but blocked by Hungary.
This EU budget replenishment, which remains the European Commission's preferred option because it covers a four-year period, also includes €4 billion for other priorities, including investments in defense and migration.
Regardless of the model chosen, the EU has promised to provide Ukraine with funding no later than March, according to officials briefed on a phone call between G7 finance ministers last week.