Will the EU's €90bn Loan for Ukraine Succeed Without Tapping Russian Assets?

European Union leaders have reached a significant agreement to provide Ukraine with a €90 billion (£79 billion; $105 billion) loan, aimed at supporting the country’s military and economic needs over the next two years. This decision comes amidst ongoing discussions about utilising frozen Russian assets, which ultimately did not materialise due to disagreements among EU member states. The deal signifies a crucial lifeline for Ukraine as it faces a looming financial crisis.

Last updated: 20 October 2023 (BST)

What’s happening now

The recent summit in Brussels concluded with EU leaders agreeing to extend a substantial loan to Ukraine, providing a much-needed financial cushion as the country grapples with the economic fallout from the ongoing conflict with Russia. Ukrainian President Volodymyr Zelensky had advocated for the use of €200 billion from frozen Russian assets to support Ukraine, but the bloc opted for a loan backed by the EU’s common budget instead. This decision was described as a demonstration of unity among the leaders, especially in light of potential internal divisions.

Key takeaways

The EU has agreed to a €90 billion loan for Ukraine to support its military and economic needs.
Disagreements over using frozen Russian assets led to the decision to fund through the EU budget.
Ukraine requires an estimated €135 billion over the next two years to maintain stability.

Timeline: how we got here

Recent developments regarding financial support for Ukraine can be traced through key events:

February 2022: Russia launches a military invasion of Ukraine, leading to a humanitarian and economic crisis.
October 2022: EU leaders begin discussions about financial aid and support for Ukraine.
October 2023: After extended negotiations, EU leaders agree on a €90 billion loan for Ukraine during the summit in Brussels.

What’s new vs what’s known

New today/this week

The most notable development is the EU’s agreement to provide a €90 billion loan, which will be crucial for Ukraine as it faces critical financial challenges. The leaders' decision to borrow funds rather than utilise frozen Russian assets marks a significant shift in strategy, aimed at maintaining unity among member states.

What was already established

Prior to this agreement, discussions had centred around the potential use of frozen Russian assets to support Ukraine. However, concerns regarding liability and the risk of division among EU leaders had stalled progress. The urgency of Ukraine's financial situation had been clear, with warnings from Zelensky about the dire consequences of failing to secure timely support.

Impact for the UK

Consumers and households

The ongoing conflict in Ukraine and the EU’s financial support strategy may have indirect implications for UK consumers. As European economies adjust to the financial strain of supporting Ukraine, there could be ripple effects in terms of inflation and energy prices, which may affect UK households in the coming months.

Businesses and jobs

For UK businesses, the EU's commitment to Ukraine could signal stability in the region, potentially reassuring investors and maintaining supply chains that have been disrupted due to the conflict. However, companies involved in sectors reliant on energy imports may face continued volatility as the geopolitical landscape evolves.

Policy and regulation

The UK government will likely monitor the EU’s financial strategies closely, particularly regarding any shifts in sanctions policy against Russia. As the EU engages in further discussions with Russia, the UK may need to reassess its own diplomatic and economic approach to the situation.

Numbers that matter

€90 billion: The total loan amount agreed upon by EU leaders for Ukraine.
€135 billion: The estimated additional funds Ukraine requires over the next two years to maintain economic stability.
€200 billion: The amount Ukrainian President Zelensky proposed to fund from frozen Russian assets.

Definitions and jargon buster

EU: European Union, a political and economic union of member states located primarily in Europe.
Loan: A sum of money that is borrowed and is expected to be paid back with interest.
Frozen assets: Financial assets that have been restricted from use, typically due to sanctions.

How to think about the next steps

Near term (0–4 weeks)

In the immediate future, the focus will be on the disbursement of the loan to Ukraine and ensuring that the funds are utilised effectively to address pressing military and economic needs. Monitoring the reactions from Russia and any ensuing diplomatic discussions will be critical.

Medium term (1–6 months)

Over the next several months, Ukraine will need to demonstrate that the financial support is making a tangible difference in stabilising its economy. Additionally, the EU may need to address any internal divisions that arise from the discussions surrounding frozen Russian assets and continued support for Ukraine.

Signals to watch

Updates on the implementation of the €90 billion loan.
Further EU discussions regarding sanctions and frozen assets.
Diplomatic engagements between EU leaders and Russian officials, particularly any re-engagement efforts discussed by President Macron.

Practical guidance

Do

Stay informed about the developments in EU-Ukraine relations and financial support mechanisms.
Monitor the broader economic impact of the conflict on energy prices and supply chains.

Don’t

Assume that the loan will resolve all of Ukraine’s economic challenges without ongoing support and adaptation.
Neglect the potential ripple effects on the UK economy, particularly in relation to energy and inflation.

Checklist

Understand the implications of EU financial support for Ukraine.
Keep track of energy prices and market reactions to the conflict.
Stay updated on UK government policies regarding the situation in Ukraine.

Risks, caveats, and uncertainties

While the agreement on the loan is a positive step for Ukraine, uncertainties remain regarding the long-term sustainability of such financial support. The EU's inability to utilise frozen Russian assets may lead to future disputes among member states about financial responsibilities. Additionally, any potential re-engagement with Russia could complicate the current dynamics and lead to unpredictable outcomes.

Bottom line

The EU's decision to extend a €90 billion loan to Ukraine is a crucial development that highlights the bloc's commitment to supporting the country amid ongoing turmoil. As the situation evolves, it remains essential for both EU leaders and UK observers to stay vigilant regarding the implications of these financial measures and the broader geopolitical landscape.

FAQs

What is the purpose of the €90 billion loan for Ukraine?

The €90 billion loan aims to support Ukraine's military and economic needs over the next two years, helping the country avoid a financial crisis.

Why were frozen Russian assets not used for Ukraine's support?

Disagreements among EU leaders regarding liability and sharing responsibility for the frozen assets prevented their use as a funding source for Ukraine.

What are the potential impacts of this loan on the UK?

The loan may indirectly affect UK consumers and businesses through changes in energy prices and economic stability in Europe as a result of ongoing support for Ukraine.