Ukraine $106bn loan approved by EU ambassadors

EU ambassadors approved on Wednesday the disbursement of a promised 90bn euro ($106bn) loan to Ukraine as well as a new package of sanctions against Russia, after Hungary lifted its veto, the bloc's Cypriot presidency said.

The European Union's 27 member states are now expected to sign off on the deal by Thursday afternoon, a spokesperson for the Cypriot presidency added.

The EU agreed last year on the loan to keep Ukraine liquid through 2026 and 2027.

But Hungary refused to sign off on the deal as Russia-friendly Prime Minister Viktor Orban accused Ukraine of sabotaging the transit of Russian oil through a pipeline damaged by Russian attacks.

The spat had also delayed the new sanctions against Russia, which the EU had initially aimed to adopt to mark the fourth anniversary of the start of Russia's military campaign in Ukraine on February 24, 2022.

The stumbling block was finally removed when Hungary's oil group MOL said on Wednesday it had been informed by Ukraine that deliveries of Russian crude had resumed through the Druzhba pipeline.

Both countries remain reliant on Russia for much of their energy.

Ukraine's prospects for receiving the loan had already improved when Orban lost Hungary's parliamentary election on April 12.

The leader of the winning party, Peter ​Magyar, has said he will no longer block the EU funds for Kyiv, though he is only expected to take power next month.

How will Europe lend Ukraine the money?

European Union leaders had decided last December to jointly borrow the money to lend to Ukraine to fund its defense against Russia for this year and next, using frozen Russian funds as a potential backstop to ensure that Moscow ultimately pays.

The EU will provide interest-free loans for the years 2026-2027 based on EU borrowing on capital markets backed by the EU budget headroom, which is the difference between the maximum amount the EU can ask EU members to contribute and the amount it needs to cover foreseen expenses.

Hungary, Slovakia and the Czech Republic, with governments seen as closer to Moscow, secured exemptions that mean they will not participate in the joint borrowing.

Repayment

Ukraine is not expected to pay the money back from its own funds, with the capital only due for repayment once Russia pays reparations after the conflict is over.

Russia has central bank assets that are frozen in the EU which are worth around $247bn and which could be used for the repayment.

The scheme was designed to effectively make use of the frozen Russian funds to help Ukraine without confiscating the money, a step that had been rejected as legally risky.

What will it cover?

The $106bn is to cover two-thirds of Ukraine's needs for the next two years, estimated at $158bn in total.

Of the total, Ukraine will get $53bn in 2026 and another $53bn in 2027.

Each year, $33bn will be for spending on military needs and $20bn on general budget needs.

Brussels expects other developed countries sympathetic to Ukraine to provide the rest of the funding, which has already been promised for 2026.