EU finally approves allocation of up to EUR 35 bln to Ukraine using frozen Russian funds

The EU Council has finally approved a financial assistance package for Ukraine, including an exceptional macro-financial assistance (MFA) loan of up to EUR 35 billion under the G7 Extraordinary Revenue Acceleration (ERA) initiative, which provides for the allocation of up to $50 billion to be repaid with revenues from frozen Russian assets.

As stated in a message on the social network X of Hungary, which holds the EU presidency, a loan cooperation mechanism has also been approved, which will help Ukraine repay loans of up to EUR 45 billion (about $50 billion) provided by the EU and G7 partners under this initiative.

Earlier it was reported that the terms of the new MFA would be tied to the terms of the Ukraine Facility and its allocation is planned to begin before the end of this year.

Yesterday, U.S. Treasury Secretary Janet Yellen announced that the U.S. is very close to finalizing the approval of the U.S. portion of this ERA loan. According to her, the U.S. was still waiting for guarantees from the EU on the introduction of a longer-term sanctions regime to ensure that profits from Russian assets remain available. Currently, the EU sanctions regime requires unanimous extension every six months, and its extension to three years is blocked by Hungary.

According to German Finance Minister Christian Lindner, with such funding from the U.S., support from the European Union would amount to "around EUR 18 billion," which is equivalent to about $20 billion, although to be on the safe side, the EU has approved the possibility of allocating a loan under the ERA in the amount of up to EUR 35 billion.

On October 22, Great Britain already announced that it was providing Ukraine with a military loan of GBP 2.26 billion (almost $3 billion at the current exchange rate) to purchase the necessary military equipment under the ERA.

In June, immediately after the G7 decision on the ERA initiative, Canada announced the allocation of CAD 5 billion ($3.6 billion at the current exchange rate) under it.

The IMF, in its updated Extended Fund Facility (EFF) program following the fifth review, indicated that if the war ends at the end of 2025, Ukraine will need $33.1 billion out of the indicated $50 billion to support the budget: $19.1 billion next year, $9.2 billion in 2026, and $4.9 billion in 2027.

In the negative scenario of the war extending until mid-2026, Ukraine's budget will need all $50 billion to cover the deficit.