EU prepares a €20 billion backup plan for Ukraine in case of Hungary’s veto

The European Union is developing a reserve mechanism to supply Ukraine with up to EUR 20 billion in aid, bypassing Hungary’s veto. It was reported by the Financial Times, quoting its sources.

The FT article states that the EU is looking for a way to bypass Hungarian Prime Minister Viktor Orbán’s veto, which blocks financial support for Ukraine worth €50 billion. One option is a €20 billion initiative that does not require unanimous support from all EU member states.

The search for alternative ways to secure much-needed aid for Ukraine in the event that the EU fails to address existing internal divisions began immediately after EU member-state leaders failed to agree on a planned EUR 50 billion four-year package for Kyiv at the December EU summit.

The participating EU member states would issue guarantees to the EU budget, allowing the European Commission to borrow up to €20 billion on capital markets. Parliamentary consent would be required in certain countries, including Germany and the Netherlands.

The EU leaders are still discussing the details of a potential agreement, while the ultimate aid volume will be based on Ukraine’s needs.

The European Commission-approved four-year €50 billion finance plan for Ukraine, on the other hand, remains relevant. The EU expects to come back to this topic at its upcoming EU summit on February 1.

Currently, the easiest way to avoid Hungarian Prime Minister Viktor Orbán’s veto, if he chooses to use it at the summit on February 1, is a model that provides for member-state guarantees to the EU budget in the amount of up to EUR 20 billion, allowing the European Commission to borrow up to EUR 20 billion on capital markets in Kyiv’s interest.

During the COVID-19 pandemic in 2020, the European Commission granted up to EUR 100 billion in financing to EU countries under a similar initiative.

This alternative would avoid the need for guarantees and unanimous backing from all 27 EU member states, as well as circumventing Hungary’s inevitable veto.

To that purpose, several member states, such as Germany and the Netherlands, will require parliament’s approval before providing national assurances. It may take some time, but the EU aims to have completed the necessary procedures by the time it has to give help to Ukraine before March.

The European Union maintains that there are now no technical obstacles to providing funding to Ukraine, but that politically, “everything is more difficult.”

One downside of the program, which includes state budget guarantees, is that it will confine itself to loans and exclude EU grants. However, member countries might provide grants to Ukraine on bilateral terms.

Following the December EU meeting, many leaders voiced optimism that the EU will make a decision on financial assistance for Ukraine at the start of the year.

Previously, the European Commission suggested providing Ukraine with €50 billion in financial assistance by 2027, with €33 billion in loans and €17 million in grants.

The EU is considering extending this year’s plan, which allowed the EU to send EUR 17 billion in low-interest loans to Ukraine for a period of several months to a year. A simple majority of countries’ votes are required to ratify the proposal.

The EU maintains that approving a four-year aid package for Ukraine, which Hungary rejected in June, is the best alternative.

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