Brussels says to Kyiv. Ukraine is expected to use most of the €90 billion loan it receives from the EU to buy European-made defense equipment. Only if the Ukrainian army needs equipment that is not available in Europe at short notice can it make its purchases in the United States or elsewhere.
These conditions, which are contained in a proposal from the European Commission, should ensure that European industry fully benefits from the financial support to Ukraine. European rearmament, it appears once again, is also a form of industrial policy. The desire to give European producers priority, traditionally a hobbyhorse of France, is now widely shared.
The Netherlands and Germany had argued in recent days that Ukraine should be given the space to make some purchases from other allies, especially the US. Think of Patriot anti-aircraft systems, or parts to keep F-16s in the air. Kyiv should be able to purchase such equipment in the US without any explanation to Brussels, the Netherlands thought, even though the money came from Europe.
The European Commission only partially agrees with this. Kyiv can purchase elsewhere, but will first have to substantiate that there is an “urgent need” for specific equipment, which means that delivery from the EU or a European partner country is not an option. The Commission and a majority of EU countries will have to agree to it.
A Dutch suggestion to reserve in advance an amount of at least 15 billion euros that would allow Ukraine to shop outside Europe without paperwork, was not successful. In total, Ukraine will be able to finance around 60 billion euros in defense expenditure with European money. The remaining 30 billion is intended to close other gaps in the budget.
“We all want peace for Ukraine,” said Commission President Ursula von der Leyen on Wednesday when presenting the proposal. “And for that, Ukraine must be in a position of strength, on the battlefield and at the negotiating table.”
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Ukraine desperately needs the money. Under President Trump, the US government no longer sends money and weapons to Kyiv. European countries are strapped for cash and do not want to simply fill the American gap with their own money. The IMF also saw little room to intervene.
For months, the European Commission tried to use the Russian central bank’s assets worth more than 200 billion euros that are located in Europe and have been frozen since the Russian invasion of Ukraine. Not the European taxpayer, but Russia should pay for the costs, Von der Leyen thought. Only if Moscow were to pay reparations to Ukraine after the war would it see its money back.
That solution was defeated in December during a marathon meeting in Brussels. Belgium, which houses the lion’s share of Russian assets in Europe with securities house Euroclear, feared the consequences of such an unprecedented intervention. Prime Minister Bart De Wever could not be relented, and other countries also began to hesitate.
Nominally, Ukraine must repay the loan, but there are doubts whether that will happen.
It led to a compromise. The aid to Ukraine would be paid by the EU by taking out a joint loan, with the EU budget as collateral, and lending that money to Ukraine. Hungary, Slovakia and the Czech Republic negotiated an exception: these three countries will not participate. Interest costs for the EU are estimated at 3 to 4 billion euros per year.
In name, Ukraine must repay the loan, but there are doubts in Brussels whether this will actually happen. Due to the defined purchasing conditions, much of the money will in practice still flow back to Europe.
The Commission wants to pay out the first money from the loan in April. To achieve this, Von der Leyen will first have to agree with the EU countries and the European Parliament on the precise conditions.
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