50 billion for Ukraine. What you need to know about the new EU aid

 

The European Union revised its medium-term budget for the first time in its history. Before that, the budget was discussed and approved once every seven years. This approach was influenced by the Russian invasion of Ukraine.

"Our budget no longer reflects the challenges we face - I mean Russia's war against Ukraine, which we could not have predicted," an EU official told the briefing.

In order to ensure the stability and predictability of financial support to Kyiv, the European Commission proposed in June 2023 that it be included in the EU budget, before that, macro-financing of Kyiv was ensured through extra-budgetary instruments. "Fighting an existential war, Ukraine has simultaneously started its path towards joining the European Union. Given the scale and complexity of the problems associated with the recovery and reforms underlying the EU enlargement process, Ukraine needs the continued support of the European Union," the website said. of the European Commission.

Seven months later, on February 1, 2024, the European Council adopted the proposal of the European Commission practically without changes, thus expressing the political will of the EU and marking support for Ukraine as a priority. Now the European Parliament needs to adopt the corresponding draft law - this is expected to happen at the last session in February.

 

Not only grants, but also loans

 

The aid fund for Ukraine, planned in the amount of 50 billion euros in the form of grants and loans, is the largest amount of aid to a non-EU country in the history of the European Union. Its purpose is to support the stability of the state finances of Ukraine. Grants will make up one third of the fund, i.e. 17 billion euros, while the share of loans will amount to two thirds, i.e. 33 billion euros of the total amount. Interest on loans will be subsidized, the European Commission announced.

 

From 2024 to 2027, the aid fund will have to ensure both the short-term needs of the Ukrainian state and the medium-term goals for the reconstruction and modernization of the country. It is important to note that the scope of these 50 billion euros does not refer to humanitarian aid, defense and support of EU countries, which provide protection to Ukrainian refugees. Funds for these purposes are allocated through other financial instruments of the EU.

 

Three lines of financial assistance

 

"The fund for financial assistance to Ukraine has three "pillars", as they are called in Brussels: financial stabilization of Ukraine (the largest part of the fund), an investment program (about eight billion euros) and technical assistance," the official representative of Ukraine to the EU Vsevolod Chentsov told reporters. .

However, in order to receive approved financial support from the EU, Ukraine still needs to complete the preparation of the country's reconstruction, reconstruction and modernization plan, as well as the reforms that must be implemented in the EU accession process. Kyiv is developing such a plan in close cooperation with Brussels.

As emphasized by the European Commission, significant attention in this plan is devoted to public administration reform, the rule of law and rational management of finances with a strong emphasis on the fight against corruption and fraud. According to Chentsov, the plan will be approved in the near future, after all legal procedures related to the Fund for Aid to Ukraine are completed.

Based on the implementation of this comprehensive plan, funds will be provided to Kyiv under the first "pillar" of aid - according to a fixed quarterly schedule. The plan will outline the conditions and indicators that Ukraine must meet at each stage.

 

Special investment program

 

The Special Investment Program for Ukraine is designed to attract public and private investment in recovery and reconstruction by providing guarantees and blended financing (a combination of loans and grants). That is why the approval of the new program of financial assistance to Ukraine is "a good signal and incentive for other partners", said Vsevolod Chentsov.

The European Union wants to play a leading role in the reconstruction efforts of Ukraine, but recommends other donors, such as third countries, international financial institutions and international organizations, to contribute and support the implementation of a comprehensive plan for Ukraine. Cooperation between partners should be based on the work of the multi-departmental coordination platform of G7 donors, they emphasize in Brussels.

 

Technical assistance

 

The third direction of EU support is technical assistance and other measures, including engagement of reform experts, support to municipalities and civil society. Such support is usually provided to countries preparing to join the EU. As pointed out by the European Commission, these measures also contribute to the achievement of the goals of the Ukrainian plan.

The European Commission clarified that grants under the second and third "pillars" will be given on a project basis.

 

Transparency and accountability

 

During the special EU summit held on February 1, it was decided to hold an annual debate on the aid program for Ukraine based on the report of the European Commission. In addition, the European Council can ask the European Commission to submit to Kyiv a proposal with an updated version of the financial assistance.

As the representative of Ukraine to the EU pointed out, this is an opportunity to adjust the amount of aid to the further needs of Ukrainians. Assumes it will be revised upwards. At the same time, the new conditions approved by the European Council do not foresee the possibility of blocking aid to Ukraine by individual EU countries.

A fundamental condition for providing financial assistance to Ukraine is that it must remain a functioning democracy, which supports the rule of law and the protection of the financial interests of the European Union. And then the multi-level audit and control system comes into play.

First of all, Ukraine must reform the audit and control system of the Ukrainian state, which is part of the planned reforms. Second, the European Commission will be able to inspect the implementation of projects at every moment of the project cycle, and third, an independent board of auditors will report to the European Commission on possible misuse of funds within the support program.

In order to receive 50 billion, Kiev and Brussels still have to sign a framework agreement on EU aid. This document will contain legally binding mechanisms for the management, control, monitoring, evaluation, reporting and auditing of EU funds, as well as measures to prevent, investigate and eliminate violations, fraud, corruption and conflicts of interest.

 

For example, Kyiv will have to publish data on individuals and legal entities that receive more than 500,000 euros for carrying out reforms and investments. Ukraine should create a monitoring system and annually report to the European Commission on the implementation of the plan. This measure will include a report on Ukraine's internal control system and any amounts that have been unduly paid or misused and eventually reimbursed by the EU.

Reporting requirements will also be imposed on recipients of EU funds under the second and third "pillars". Brussels specifies that the control mechanisms for them will be based on the systems, rules and procedures of international financial organizations and partners.

 

First payments

 

If everything goes according to plan, then in March Ukraine will be able to receive the first tranche, they say in Brussels. This will happen shortly after the financial aid law goes into effect.

"The proposal of the European Commission envisages the first payment to Ukraine when the work on the plan is sufficiently developed, but before its adoption and before the signing of the framework agreement," said a representative of the European Commission.

These are quarterly payments for a monthly amount of up to 1.5 billion euros.

The Ukrainian side would like the first tranche to be larger - to cover current costs and the deficit created in the first months of the year, Chentsov said. He explained that these months are traditionally difficult due to insufficient tax revenues, which makes the war even more difficult.

 

Internal challenges for Kyiv

 

Experts warn of numerous internal and external challenges that Kyiv and Brussels may face during the implementation of this plan, in addition to hostilities on the territory of Ukraine.

"The main task will be to reconcile the expectations of the EU and Ukraine," says Simon Shlegel, senior analyst for Ukraine at the International Crisis Group. "She has to implement a huge number of reforms in a short time, and these measures may prove unpopular."

In addition, Ukraine will have to continue the fight against corruption. "So far they've done a good job and progressed according to Transparency International's rating, but there's always a risk when it comes to big money," Schlegel said.

 

According to him, one of the biggest obstacles is the lack of skilled labor, which Ukraine has faced in connection with the ongoing war. To implement the ambitious plan of Kiev and Brussels, it is necessary to find many experts "who will be able to carry out all these difficult tasks of reforming and rebuilding Ukraine", says Schlegel.

 

External challenges

 

His colleague from the International Crisis Group, senior EU analyst Marta Muchnik, reminds that European support alone is not enough to meet Ukraine's needs.

"There is great uncertainty surrounding the US election and its implications for support for Ukraine, especially with Trump leading in opinion polls. Unpredictability on the US front, combined with the potential rise of the far right in Europe, could turn additional support for Ukraine into a source of further division." within the EU and between member states," says Muchnik.

This, according to Muchnik, is especially relevant in the conditions when the economic consequences of the war for Europeans are becoming more and more obvious.

He points out that the results of the upcoming elections for the European Parliament, where the extreme right could become the third largest group according to recent polls, as well as the presidential and parliamentary elections in nine EU member states, which may lead to the undermining of European unity on help Ukraine. "The EU may have to show ingenuity to think about different scenarios and overcome future vetoes and resistance to what the majority of member states support," Muchnik said.