All EU member states, apart from Hungary, have agreed to financially guarantee a further €5 billion of macro-financial assistance in long-term loans to Ukraine, EURACTIV has learned.

The Commission is set to put forward a formal proposal on the matter next week, despite resistance from the Hungarian government, according to sources familiar with the matter.

At the end of next week, EU economy ministers are expected to sign a political declaration in support of the €5 billion in macro-financial assistance (MFA) when they meet in Prague for an informal council meeting.

The package is then expected to be formally adopted in the General Affairs Council that will take place on 20 September in Brussels.

Asked by EURACTIV, the EU Commission confirmed that its proposal for €5 billion in MFA loans for Ukraine could be expected to be presented next week.

“Once the Commission’s proposal is adopted, it will be considered by the European Parliament and Council,” a Commission spokesperson said.

The €5 billion that member states agreed on at a working level on Friday (2 September) is part of the up to €9 billion macro-financial assistance that the EU Commission announced in May. Following doubt on how to finance the EU’s fiscal help, however, only €1 billion of this macro-financial assistance had formally been agreed upon until now.

The €1 billion that was agreed upon in the summer was backed by guarantees from the EU budget. However, constraints on the budget make it impossible for it to finance the rest.

€3 billion still under discussion

The remaining €8 billion, therefore, has to be secured through financial guarantees from member states, which lead to complicated discussions about how much each member state would put up.

According to several sources, the German government was opposed to providing additional loans to Ukraine due to the risk of a default of the Ukrainian government. Instead, it argued for grants that would not be expected to be repaid by Ukraine. Moreover, Germany had unilaterally promised to support Ukraine with €1 billion earlier this year and wanted this promise to be counted towards its contribution to the EU’s macro-financial assistance for Ukraine.

While Germany and all other member states except Hungary now seem to agree on providing a further €5 billion in macro-financial assistance to Ukraine, €3 billion is still missing for the promised total.

Discussions on the remaining €3 billion are still ongoing with member states, which disagree on whether they should come in form of grants or loans.

“We are continuing our work on the remaining €3 billion of the €9 billion MFA package for Ukraine,” a Commission spokesperson told EURACTIV.

According to estimations by the International Monetary Fund (IMF) earlier this year, the Ukrainian government needs financial support of around €5 billion per month to stay solvent. If it does not get enough financial support, it might be forced to monetise its deficit, which would entail a risk of runaway inflation.

[Edited by Nathalie Weatherald]

Source: Euractiv.com