50 billion euros - European support for Ukraine

Brussels wants to establish a financial mechanism for Ukraine, although the budget deficit of the European Union for 2022 was 107.6 billion euros higher than in 2021 (344.3 billion euros in 2022 and 236.7 billion euros in 2021) according to the annual report drawn up by the European Court of Auditors (ECA).

According to the draft resolution of the European Parliament debated in the first reading, the Facility for Ukraine would receive a maximum allocation of 50 billion euros for the period 2024-2027.

"As all bilateral assistance to Ukraine will be provided under the Ukraine Facility, additional funds in the form of external assigned revenue are required in addition to the financial envelope defined in Article 6, to provide additional grants to further support Ukraine," it said. point 47 of the preamble of the draft resolution.

The document provides for the establishment of the allocation of an annual amount for the support given to Ukraine and states: "Commitment credits and corresponding payment credits from the Reserve of Ukraine should be mobilized annually in the budget above the ceilings of the multiannual financial framework. In order to effectively allow oversight and freedom of action for the budgetary authority, the Reserve of Ukraine should be composed of at least three additional budget lines corresponding to each of the pillars in which the proposal is structured. For the part of the support provided by the Facility for Ukraine in the form of loans, it is appropriate to extend the Union's budgetary guarantee to cover the financial assistance made available to Ukraine (...), until the end of 2027".

According to the cited project, 75% of the total allocation of 50 billion euros constitutes a form of non-refundable financial support, of which at least 15% will be paid for the recovery, reconstruction and modernization needs of sub-national authorities of Ukraine, such as regions, cities and local communities.

In addition to the EUR 50 billion, Article 13 of the draft legislative resolution stipulates that, in duly justified exceptional circumstances, in particular if a significant deterioration of the war makes it impossible for Ukraine to fulfill the conditions attached to the forms of support under this regulation, the Facility may provide exceptional financing to Ukraine to maintain its macro-financial situation, stability and to promote the achievement of the stated objectives, with the exceptional financing to cease as soon as the fulfillment of the conditions becomes possible again.

The three pillars of the Facility for Ukraine established in the future European normative act are: Pillar I - financial support to be granted to Ukraine for carrying out reforms and investments for the implementation of the Plan for Ukraine, as well as for maintaining the macro-financial stability of the country; Pillar II - a specific Ukrainian investment framework to support investments and provide access to financing; Pillar III - technical assistance and support to Ukraine for the design and implementation of reforms related to EU accession and for boosting Ukraine's administrative capacity, as well as other relevant activities.

A Plan for Ukraine will be drawn up for Pillar I. After the approval of this plan by the European Commission, Ukraine will be able to benefit from pre-financing in the amount of up to 7% of the non-refundable financial support and the loan to be granted. That plan will set out Ukraine's reform and investment agenda, integrated into an economic and fiscal policy framework, and will include measures to implement reforms and public investment, contained in a comprehensive and coherent package, which may also include public schemes to stimulate private investment.

The draft normative act provides for the possibility of the Commission, if the plan is not adopted by December 31, 2023, to grant Ukraine limited and exceptional support for a period of up to three months from the entry into force of the regulation or from January 1, 2024. The value of this financial support cannot exceed 1.5 billion euros per month.

Regarding Pillar II of the Facility, which will support recovery and reconstruction investments undertaken by private sector companies, municipalities, state-owned enterprises or other actors, the quoted document states: "The Investment Framework in Ukraine should address the priorities identified in Plan for Ukraine and support its objectives and implementation. (...) Given the need to coordinate international support for the recovery, reconstruction and modernization of Ukraine, international organizations, international financial institutions, especially the EIB and EBRD as key financial institutions, as well as member states, development national banks, third countries, or other donors can play a major role in financing or as implementation partners of the measures or projects supported by the Facility. National and local, private and state-controlled financial institutions of Ukraine may be involved in the implementation of the instruments. The investment framework will consist of an integrated financial package providing financing capacity in the form of financial instruments, budgetary guarantees and mixed operations in Ukraine".

Regarding Pillar III of the Facility, the technical assistance granted by the Commission will aim to support Ukraine to achieve the acquis communautaire with a view to joining the European Union. Such support includes strengthening the rule of law, democracy, respect for human rights and fundamental freedoms, strengthening public administration efficiency and institutional capacities, decentralization and supporting transparency, structural reforms, sectoral policies and good governance at all levels. Technical assistance will support the creation and strengthening of Ukrainian authorities responsible for ensuring the proper use of funds, auditing and effective fight against mismanagement of public funding, in particular fraud, corruption and high-level corruption, oligarchic structures, conflicts of interest and irregularities arising in the report with any amount spent to achieve the objectives of the Facility.

It seems that the regulation of this Facility for Ukraine by the EU institutions will considerably increase the overall risk of the EU budget against possible future debts, which at the end of 2022 amounted to 248.3 billion euros (compared to 204.9 billion euros in 2021), an increase partly caused by the EU's financial support for Ukraine, which doubled last year compared to 2021 (16 billion euros compared to 7 billion euros), according to the annual report of the European Court of Auditors (ECA). The ECA auditors showed in the quoted document that the approval of new allocations for Ukraine will significantly increase this risk for the future budgets of the European Union.