EU concerned Hungary could oppose €18bn aid package proposal for Ukraine

Budapest has said that it is against the EU taking out credit to help Kyiv

A house in the village of Yampil, Ukraine, destroyed in recent shelling. AP

The European Union Commission on Wednesday unveiled a “tailor-made” proposal to support Ukraine, with €1.5 billion in concessional loans a month in 2023 to help the country keep its public services running and repair infrastructure destroyed by Russia.

The proposal was immediately welcomed by Ukraine’s President Volodymyr Zelenskyy, who said it showed “true solidarity” from the EU.

But the threat of a veto from Hungary overshadowed the proposal, which must be unanimously accepted by the EU’s 27 member states.

Hungarian Finance Minister Mihaly Varga on Tuesday told his colleagues in Brussels that his country would not support offering concessional loans to Kyiv.

Gergely Gulyas, chief of staff for Hungarian Prime Minister Viktor Orban, said Budapest was willing to pay its share of financial support for Ukraine but would rather pay it bilaterally than see more of the joint borrowing that the EU agreed on to prop up economies during the Covid-19 pandemic.

“Now they ask us again to approve something that we had never agreed with in principle,” he told a news briefing in Budapest. “There is joint decision making, so if we don't agree to this, this decision cannot be made.”

Media reports have linked Hungary’s refusal to the fact that Brussels has since May withheld billion of euros' worth of Covid recovery funds over corruption and rule of law concerns.

Senior EU officials said they were aware that Hungary might derail their proposal to raise €18bn in long-term loans on the capital markets to support Ukraine in 2023.

“We will be working very intensively with all member states, including Hungary,” said EU Commission Executive Vice President Valdis Dombrovskis at a press conference.

“We’ll be discussing what are the concerns that Hungary harbours in relation to this proposal and I hope we’ll come up with a solution.”

EU officials have said Ukraine needs between €3bn and €5bn a month next year.

“On behalf of the EU, we would ensure €1.5bn per month and other international donors would provide the rest,” said Mr Dombrovskis.

The loans would have a grace period of 10 years, with a maximum maturity of 35 years. The EU’s 27 member states would have to cover interest-related costs. The package is “tailor-made” for Ukraine and “reflects the acute needs that Ukraine faces”, said Mr Dombrovskis.

In exchange, Ukraine will have to make sectoral and institutional reforms to fight fraud and corruption as well as strengthen the rule of law.

The EU’s Budget and Administration Commissioner Johannes Hahn told reporters that conservative estimates indicate that the cost of borrowing for the bloc would reach €630 million in total for 2023.

This cost would be allocated to member states depending on their national income, meaning that Hungary would pay €6m a year while Mr Hahn’s home country Austria would pay €18m.

“We need to keep things in perspective here,” said Mr Hahn.