EU prepares Plan B loan to Ukraine using Russian assets in case of US' non-participation

The European Union plans to provide a new loan of up to €40 billion to Ukraine by the end of 2024, regardless of US participation, after the G7-approved plan for a US$50 billion loan using frozen Russian assets ran into problems.

As reported by Financial Times, the EU is preparing to provide Ukraine with up to €40 billion in loans by the end of the year, regardless of whether the US will be able to agree on participation. 

This is a US$50 billion loan plan for Ukraine agreed by the G7 leaders, which will be repaid by the profits from the frozen Russian assets. However, the EU and the US have since disagreed on the details.

Initially, it was planned that the EU and the US would each provide US$20 billion, with the remaining US$10 billion to be shared by the UK, Japan and Canada.

The US wants safeguards to ensure the stability of the income that will service the loan. These safeguards should include frozen Russian assets – most of which are in Europe – remaining frozen. 

Brussels has proposed changing the model for extending sanctions that block Russian assets and making the extension period 36 months rather than 6 months, which would provide more certainty. There were also proposals for a five-year term. 

Hungarian PM Viktor Orbán supposedly strongly opposed this idea and did not want to go back to the issue before the name of the new US president was known.

The European Commission's Plan A remains the initial arrangement with the US. However, European officials want to prepare options in case Budapest continues to hold a veto until the 5 November elections. 

According to a draft document obtained by the FT, the EU plans to prepare a billion-euro aid package for Ukraine by the end of the year, which will complement the existing European aid programme. The decision will require a majority support, not unanimity, which will allow the Hungarian veto to be overridden.

The figure could range from €20 billion to €40 billion, and the European Commission will finalise it after consulting with the member states. 

If the EU uses the alternative option, it will need to increase EU borrowing and back it up with a joint budget. To implement Plan B, preparations will have to begin in the coming weeks to complete all formalities in time. 

The draft states that it is important to approve the proposal by the end of October so that the loan itself can be finalised by the end of 2024 and then gradually allocated to Ukraine in tranches. It also provides for the use of proceeds from frozen Russian assets, estimated at €2.5 billion to €3 billion a year, to repay the loan.

Earlier, it was unofficially reported that the growing popularity of US presidential candidate Kamala Harris has reduced the prospects for a quick agreement on the terms of a US$50 billion loan to Ukraine.