E.U. Aims to Finalize $9.5B Ukraine Loan Package This Week

The European Union is expected to finalize the details of a 9 billion euro ($9.5 billion) financial package for Ukraine in the coming days to bolster the war-torn nation.

The new macro-financial assistance program for Kyiv would consist of 25-year loans, with a 10-year grace period to reimburse the principal, three E.U. officials said, who added that interest payments would be covered by the E.U. budget.

The proposal is likely to be ready later this week, the officials said, with E.U. leaders scheduled to meet Thursday and Friday in Brussels to discuss Ukraine’s reconstruction plan and its bid for membership in the bloc. The aid plan would have to be approved by all 27 member states.

The European Commission first proposed the latest aid package in mid-May to cover part of Ukraine’s financial needs of around 5 billion euros per month. The Ukrainian government has been calling on its partners to transfer the funds as a matter of urgency, but the commission and Germany disagreed over the package’s design.

The E.U.’s executive arm insisted on using a loan-based instrument, while Germany had been pushing to use grants to avoid increasing Kyiv’s debt burden. Berlin announced a 1 billion euro non-refundable contribution to Ukraine last May during a meeting of Group of Seven finance ministers hosted by Germany.

Some other countries, including Slovakia, also questioned initially whether loans were a better way to support Kyiv, according to people familiar with the matter. Other member states, including Denmark, asked whether offering grants would undermine the credibility of Ukraine in the markets.

The financial package needs the backing of E.U. member states and the European Parliament.

Another issue has been how much national governments would have to offer in guarantees to back the loans in case Ukraine defaults. The bloc will cover 100% of it, with some 8 billion euros provided by members states. The remainder would come from the E.U. budget, the officials said.

The commission is contacting member states to finalize some details related to the guarantees but remains confident that the first disbursement will take place this summer, an E.U. official said.

The bloc originally aimed to complete the plan early this month since Ukraine’s financial needs keep piling up. Under that timetable, the commission was planning to begin raising funds in the markets next month for a first transfer, the people said.

The E.U. planned to transfer three or four more installments by the end of the year, although it would depend on the availability of the guarantees and Ukraine’s financial needs, said the people, who asked not to be identified because the talks were private.

The financial package is expected to include some conditions that would take into account Ukraine’s current circumstances and be related to reconstruction efforts and avoiding the misuse of funds, E.U. officials said.

—With assistance from Michael Nienaber and Alberto Nardelli.