EU may offer its own budget as guarantee for loan to Ukraine

Instead of depending on a larger US-led plan, the EU has indicated that it may dramatically enhance funding for Ukraine by getting its own multibillion-dollar loan to assist Kyiv.

As reported by Politico, EU finance ministers are discussing the proposal at a meeting on Wednesday.

The European Commission is considering using future income generated by the investment of Russian assets frozen in Europe to repay a loan secured by the bloc's €1.2 trillion seven-year budget.

This proposal would be a significant step forward from the EU's recently agreed-upon plan to spend the majority of the revenues earned by Russian assets blocked in Europe, approximately €3 billion per year, to purchase armaments for Ukraine.

"Those windfall profits [generated on assets immobilised in the EU] would be used to finance the principal and interest for a loan to Ukraine supported by the EU budget," the confidential document prepared in Brussels says.

The previous idea, which G7 finance ministers cautiously welcomed at a meeting last month, would have seen the United States or G7 countries jointly securing the loan for Kyiv, while leveraging the revenues of Russian assets primarily held in Europe to repay the interest.

The United States said that the loan should be US$50 billion, but the sum has yet to be negotiated.

If the plan is approved by the European Commission, states must agree unanimously to amend the EU's seven-year budget, and the European Parliament must offer consent if it is to serve as a backstop for the loan. Some experts fear that Russian assets may be returned to the Kremlin as part of a potential postwar settlement, necessitating the availability of alternative ways to repay the loan promptly.

Supporters of Ukraine are also concerned that Hungary's government, which will soon assume the six-month rotating presidency of the EU Council, could jeopardise the discussions due to its close ties with Russia.

Hungary won a strategic victory earlier this year by ensuring that the decision to keep the Russian funds frozen will be renewed unanimously by the EU's 27 countries every six months. This allows Budapest to potentially shut off the taps to Ukraine at any point.

The document of the European Commission proposes to find a way to circumvent this requirement in order to give the loan more predictability.

Earlier, Ukraine’s Foreign Minister Dmytro Kuleba said that Kyiv insists on confiscating and transferring to it all the assets of the Russian Federation frozen in the West.