European Commission proposes first €1 billion tranche of the new macro-financial assistance for Ukraine

This article is brought to you in association with the European Commission.

The European Commission has today proposed a new €1 billion macro-financial assistance (MFA) operation for Ukraine as the first part of the exceptional MFA package of up to €9 billion announced in the Commission’s communication of 18 May 2022 and endorsed by the European Council of 23-24 June 2022.

Today’s proposal is part of the extraordinary effort by the EU, alongside the international community, to help Ukraine to address its immediate financial needs following the unprovoked and unjustified aggression by Russia. It will complement the support already provided by the EU, including a €1.2 billion emergency MFA loan paid out in the first half of the year. Taken together, the two strands of the programme would bring the total MFA support to Ukraine since the beginning of the war to €2.2 billion, and could reach up to €10 billion once the full package of exceptional MFA to Ukraine becomes operational.

Under the proposal, MFA funds will be made available to Ukraine in the form of long-term loans on favourable terms. The assistance will support Ukraine’s macroeconomic stability and overall resilience in the context of Russia’s military aggression and the ensuing economic challenges. In a further expression of solidarity, the EU budget will cover the interest costs on this loan. As for all previous MFA loans, the Commission will borrow funds on international capital markets and transfer the proceeds on the same terms to Ukraine. This loan to Ukraine will be backed for 70% of the value by amounts set aside from the EU budget.  

As soon as the European Parliament and the Council approve today’s proposal and the corresponding Memorandum of Understanding and Loan Agreement with the Ukrainian authorities are signed, the Commission will swiftly make available the amount of €1 billion to Ukraine.

This financial assistance comes in addition to the unprecedented support provided by the EU to date, notably humanitarian, development and defence assistance, the suspension of all import duties on Ukrainian exports for one year or other solidarity initiatives, e.g. to address transport bottlenecks so that exports, in particular of grains, could be ensured.

Members of the College said:

President Ursula von der Leyen said:”The EU continues standing by Ukraine and its brave people. Today, we propose a €1 billion tranche of the new macro-financial assistance package for Ukraine. This first part of the assistance announced in May will allow us to give an immediate answer to the urgent needs of Ukraine. The EU will keep on providing relief to Ukraine and in the longer-term support its reconstruction as a democratic and prosperous country”.

Valdis Dombrovskis, Executive Vice-President for An Economy that Works for People said: “This latest financial assistance and first part of the €9 billion financial support package again demonstrates the EU’s firm commitment to support Ukraine and its people in the face of Russia’s continued illegal aggression. These loans will allow Ukraine to meet more of its immediate massive financing needs, with the EU showing further solidarity by covering the interest costs.”

Josep Borrell, High Representative/Vice-President for a Stronger Europe in the World said: “Putin’s unjustified war against Ukraine is putting massive economic pressure on the Ukrainian people. The European Union is acting with great speed to support Ukraine’s financial stability and assist it in rebuilding its future within the European family. With this emergency package, we are sending a strong message: The European Union continues to stand with Ukraine and its people.”

Johannes Hahn, Commissioner for Budget and Administration, said: “With this proposal, we continue to make best use of the EU budget to support our neighbour and ally Ukraine under the current extremely challenging circumstances. We count on rapid agreement by the European Parliament and Council which would enable us to make the first payment to Ukraine swiftly faced with urgent funding needs.”

Paolo Gentiloni, Commissioner for Economy, said: “The European Commission is committed to supporting Ukraine in shoring up its finances as the country continues to defend itself against the Russian aggressor. This proposal marks another concrete step in making good on that commitment, making available €1 billion that can be rapidly disbursed to Ukraine. We will in parallel continue to work swiftly on a proposal for the second part of the exceptional macro-financial assistance, as announced in May.”

Background

The EU has already provided significant assistance to Ukraine in recent years under its MFA programme. Since 2014, the EU has provided over €5 billion to Ukraine through five MFA programmes to support the implementation of a broad reform agenda in areas such as the fight against corruption, an independent judicial system, the rule of law, and improving the business climate. In addition, earlier this year the Commission granted an MFA emergency loan of €1.2 billion, for which the Commission raised funds in two private placements in the first half of 2022. On 18 May, the Commission set out plans in a Communication for the EU’s immediate response to address Ukraine’s financing gap, as well as the longer-term reconstruction framework.

To finance the MFA, the Commission borrows on capital markets on behalf of the EU, in parallel to its other programmes, most notably NextGenerationEU and SURE. The possible borrowing for Ukraine is foreseen in the Commission’s funding plan for the second half of 2022.

Macro-financial assistance (MFA) operations are part of the EU’s wider engagement with neighbouring countries and are intended as an exceptional EU crisis response instrument. They are available to EU neighbourhood countries experiencing severe balance-of-payments problems. In addition to MFA, the EU supports Ukraine through several other instruments, including humanitarian aid, budget support, thematic programmes, and technical assistance and blending facilities to support investment.