(Bloomberg) -- European Commission President Ursula von der Leyen announced plans for a loan of up to €35 billion ($39.1 billion) backed by the profits from immobilized Russian central bank assets to help provide more predictable financial support to Ukraine.
Von der Leyen revealed the figure after meeting with Ukrainian President Volodymyr Zelenskiy in Kyiv on Friday. The European Union’s loan is part of a broader $50 billion plan to help Ukraine that came out of negotiations with the US and the Group of Seven countries.
“This loan will flow straight into your national budget,” von der Leyen said in a news conference with Zelenskiy.
Zelenskiy said Ukraine plans to direct the funds toward the energy sector, the construction of shelters, weapons production and air-defense purchases. He added that the money should start to arrive in the “coming months.”
The EU loan plan still needs to be approved by the European Parliament and a qualified majority of EU member states.
The G-7 had agreed in June on a non-refundable loan plan to provide Ukraine with about $50 billion of fresh aid to flow by the end of the year, with the loans to be repaid using the profits generated by $280 billion in frozen Russian Central Bank funds, most of which are held in Europe.
The US and the EU had initially agreed on each contributing similar amounts of about $20 billion, until Washington demanded a more durable sanctions regime from Europe to ensure the windfall profits remain available.
The EU’s sanctions regime that keeps those assets frozen requires an extension every six months by a unanimous vote of 27 member states, which could be a problem if they aren’t renewed at some point.
Hungary, which has often delayed or blocked EU efforts to support Ukraine, recently proposed postponing any decision on the immobilization of Russian assets until after the US elections on Nov. 5.
Seeking to assuage US concerns, the commission presented member states with three options to immobilize the Russian assets for longer.
One of the options was to extend the renewal period for the asset freeze to 36 months, according to people familiar with the talks. Another proposal would have prolonged the renewal period for five years but this option could present legal issues if the rollover of sanctions was allowed by qualified majority, said the people, who spoke on the condition of anonymity. The final offer would extend both sectoral sanctions and the central-bank asset freeze for 36 months.
When the new mechanism is in place, the EU will cease its current process of using proceeds from the frozen Russian assets to finance military aid to Ukraine.
The new loan, which is expected to be disbursed in various tranches starting in early 2025, will be in addition to other aid packages, including a €50 billion EU financial plan made up of grants and loans for the period between 2024 and 2027.
The EU, the US and other G-7 allies have been working to provide Ukraine the loans by the end of the year. The package is also instrumental for Kyiv to continue receiving aid from the International Monetary Fund’s $15.6 billion assistance program for the war-battered country.
The primary goal for the EU has been to secure the US participation in the aid package, but some EU officials and diplomats has been considering the idea of moving forward without the Americans at least for the time being, given US concerns about the sanction regime, Bloomberg previously reported.
The EU is also eager to finalize its loan mechanism by year’s end, when the bloc would cease to have extra space in its common budget to set up the instrument.
--With assistance from Katharina Rosskopf.
(Updates with new von der Leyen quote, Zelenskiy remarks, next EU steps starting in third paragraph)
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