War in Ukraine: what will the 50 billion euros in aid released by the European Union be used for?

The twenty-seven countries of the European Union (EU) agreed on February 1 to provide financial aid of 50 billion euros to Ukraine

War in Ukraine: what will the 50 billion euros in aid released by the European Union be used for?

The twenty-seven countries of the European Union (EU) agreed on February 1 to provide financial aid of 50 billion euros to Ukraine. “Continued financial support from the European Union will strengthen Ukraine's financial and economic stability in the long term, which is no less important than military assistance and sanctions against Russia,” he said. Ukrainian President Volodymyr Zelensky. This aid, blocked for a time by Hungary, is all the more crucial for kyiv as the war is bogged down on the ground and American aid is still blocked in Congress.

This announcement sparked strong criticism, particularly among MEPs from the National Rally, like Thierry Mariani who lambasted on the social network in Europe. Others have also criticized the European aid as “an indecent check for 50 billion”, or “50 billion wasted to fight a war”.

But what exactly does this support package include?

What are we talking about ?

Since the Russian invasion in February 2022, the EU, its member states and its financial institutions have already paid around €85 billion in aid to Ukraine, which covers both military, humanitarian and economic.

The additional aid of 50 billion euros on which the Twenty-Seven agreed will fall within the framework of the “facility for Ukraine”, a new budgetary instrument the outlines of which were laid out by the European Commission in a draft settlement presented in June 2023. “Ukraine is courageously fighting against Russia’s invasion [of its territory] and needs our stable financial support to face the considerable costs that this entails,” argued the president of the European Commission, Ursula von der Leyen, recalling that “the EU has promised to stay by its side for as long as necessary”.

These 50 billion euros are not intended to finance the Ukrainian war effort, supported by another device, called the “European Peace Facility”. They are intended to support the recovery, reconstruction and modernization of Ukraine over the period 2024-2027, in particular to finance “essential reforms on the path to its accession to the EU”. A year ago, several international institutions estimated repairs for damage caused by the war in the country at $411 billion (€384 billion).

Loans and donations

As is often the case in European programs, the “facility for Ukraine” is a mixture of loans and aid:

– 33 billion euros (or around two thirds of the total) will be paid in the form of loans at low interest rates, which will themselves be supplemented by funds raised by the EU until 2027 on the markets financial, as part of its new common debt policy. They will have to be reimbursed ultimately by Ukraine, which will limit the cost borne by the EU in the long term.

– The remaining 17 billion euros will take the form of a grant. The funds will be drawn from the multiannual EU budget, which is supplemented by member states, and whose total amounts to 1,074 billion euros for the period 2021-2017. No reimbursement will be requested from Ukraine.

The agreement does not close the door to other potential revenues, such as the use of profits generated by frozen Russian assets, to finance this budgetary effort in favor of Ukraine.

To fund what?

The agreement reached on February 1 is provisional and must still be submitted to the European Parliament and the Council for approval. We already know that the consensus is built around three pillars:

A large part of the funds will be used to support and modernize the Ukrainian state. Concretely, the government in kyiv will have to quickly establish a recovery, reconstruction and modernization plan for Ukraine, the various measures of which will be financed over time by European money. This plan should in particular be used to reform the country with a view to its accession to the EU, by reforming its administration, its governance, and by fighting corruption and fraud.

This involves creating a financial framework that will make it possible to receive funds from public and private investors who wish to invest in Ukraine. It will be managed by an operational council made up of representatives of the Commission, representatives of each Member State, the European Parliament and representatives of the Ukrainian government and its Parliament (Verkhovna Rada). The EU will make available the technical and financial capacities of its institutions, for example, through the European Bank for Reconstruction and Development (EBRD).

Concretely, the EU will also create a guarantee fund (of 8.9 billion euros, according to the Commission's proposal) which will be used to take on part of the risk of investors to encourage them to invest in Ukraine without fear to lose their funds.

This third pillar is more vague at this stage. According to the European Commission, it aims to finance “technical assistance” and “other support measures”. In the initial proposal from the Brussels executive, it was for example a question of supporting twinning and partnerships between Ukrainian and European cities, of modernizing local administrations, of supporting SMEs or even of "enforcing international law with regard to crimes committed by Russia.”

What control over funds?

The granting of this aid to Ukraine is subject to several conditions. A report from the European Commission on the implementation of this aid must be published every year. It is on this basis that the European Council will hold an annual debate to develop and decide on future directions.

The European Parliament will also be involved in monitoring this “facility for Ukraine”. As part of the negotiations on this agreement, which it must still formally approve at the end of February, Parliament requested that the participation of the Ukrainian Parliament in the control of this aid be strengthened. On the issue of transparency, MEPs also called for the creation of a "web portal for Ukraine's financial operations" and the "mandatory publication of data on recipients of funds exceeding 100,000 euros", along the lines of of what has been done on the EU's post-Covid recovery plan.

Finally, the agreement provides that a proposal for review of this plan may be presented if necessary in two years by the Commission, as part of the new revision of the multiannual financial framework.

The timetable and conditions for payment of the 50 billion will be specified after the final adoption of this agreement, at the end of February, or even early March. But the Ukrainian Ministry of the Economy has already anticipated the payment of a first tranche of 4.5 billion euros to the first beneficiaries in March.