EU Slashes Ukraine Assistance Nine-Fold Amid Domestic Economic Troubles

The European Union has provided Ukraine with more than €6.2 billion in assistance since February, including €2 billion in military support, according to the European Commission. This week, Brussels gave the go ahead for another €1 billion euros in aid.

The €1 billion euros in macro-economic assistance for Ukraine approved by the European Commission on Tuesday is €8 billion short of the €9 billion in emergency loans originally proposed by EC President Ursula von der Leyen this spring, Bloomberg has pointed out.

The business news agency attributes Brussels’ underwhelming ‘show of solidarity’ with Kiev to major domestic economic problems, including fears of a recession, a tightening of monetary policy and the specter of being completely cut off from Russian gas.

Ukrainian Finance Minister Serhiy Marchenko told Bloomberg that Kiev hopes it can “convince all the partners that Ukraine really needs these funds and we will receive macro financial assistance by the end of the year” as the country faces a $5 billion a month budgetary gap caused by the ongoing conflict and the near collapse of the economy.

The issue has been complicated by internal squabbles between Brussels and EU members, including bloc economic and industrial powerhouse Germany, which has sought to wriggle out of additional financial commitments by pointing to its recent commitment of a separate €1 billion in non-refundable grants to Kiev through the International Monetary Fund. Earlier this month, German Finance Minister Christian Lindner said Berlin shouldn’t “be called up on twice” to help Kiev.

Another €1.5 billion loan from the European Investment Bank is said to be mired in Brussels’ bureaucracy as the European Commission continues to insist on more guarantees for the credit compared to the bank’s standard operating practice.

Von der Leyen announced earlier this month that Brussels would set up a special platform to coordinate Ukraine’s reconstruction, map investment needs, and channel resources. Kiev has estimated that it will need about $750 billion for reconstruction, and the EU has not offered any indication of where the money will come from. On Thursday, EU justice commissioner Didier Reynders suggested that Brussels might agree to unfreeze some of the estimated $300 billion Russian Central Bank assets frozen in European accounts if Russia helped rebuild Ukraine. $13.8 billion worth of assets of Russian tycoons have also been frozen in these same banks.

Ukraine’s GDP is expected to fall between 25 and 50 percent in 2022, with the latter threatening to send the country’s debt/GDP ratio well above 100 percent. This spring, Ukrainian Accounts Chamber chief Valeriy Patskan made but quickly retracted a request that the West to write off the country’s 1.6 trillion hryvnia ($57 billion) debt to foreign creditors in light of the conflict with Russia.