EU comes up with scheme to provide assistance to Ukraine bypassing Hungarian veto

The EU is preparing a back-up plan worth up to 20 billion euros for Ukraine, using a debt structure that sidesteps the objections of Hungary’s Viktor Orbán about funding the war-torn country, Report informs referring to Financial Times.

After EU leaders failed to agree a proposed 50 billion euros four-year package for Ukraine earlier this month, officials have searched for alternatives to save Kyiv from a looming budget crisis if the bloc’s differences cannot be resolved.

Officials involved in talks said one model funded by debt has gained traction as the most practical way to provide support if Orbán refuses to drop his veto at a planned summit on February 1.

This scheme would involve participating member states issuing guarantees to the EU budget, enabling the European Commission to borrow up to 20 billion euros on capital markets for Kyiv next year, people briefed on the talks said. The precise terms are still under discussion and the final amount would be set according to Ukraine’s needs, they added.

The arrangement is similar to the structure used in 2020 when the commission provided up to 100 billion euros in cheap financing to EU countries for short-term work-support schemes during the Covid pandemic.

Crucially, the option would not require guarantees from all the EU’s 27 member states, as long as the main participants included countries with top credit ratings. That would allow the EU to sidestep Hungary’s veto because it would not require unanimous backing.

Some countries, including Germany and the Netherlands, would need parliamentary approval for national guarantees, a process that officials hope could be completed in time to provide aid to Ukraine by March.

One of the people familiar with the discussions said no “technical problem” blocked ways to provide budget finance to Kyiv, but that politically “it is more complicated.”

If EU leaders agree on this plan on February 1, reassurance would be provided to the IMF to release its next tranche of funding for Ukraine worth about $900 million, the people briefed on the talks said.

That should provide enough funding to Kyiv to avoid having to resort to monetary financing, where the government would print money to sustain its deficit and risk inflation spiraling, they added.

One downside of this scheme, when compared with the original proposal based on the EU budget, is that it would be limited to loans and not include grants. Member states could still decide to provide grants bilaterally.