EU matches Putin’s €11 billion financial offer to Ukraine


Commission President José Manuel Barroso announced today (5 March) a financial package for Ukraine of approximately €11 billion, matching Russian President Vladimir Putin’s previous offer, which had rewarded former president Viktor Yanukovich for not signing the Association Agreement with the EU. Moscow has since withdrawn the offer.

Barroso announced the aid package after a meeting of EU commissioners, just before EU heads of state and government were set to meet in Brussels on 6 March for a summit aimed at defusing tensions surrounding Ukraine in recent days (see background).

Without mentioning Russia’s invasion of Ukraine's Crimean peninsula, Barroso said the events of the last few days had “shocked” the Union. He added that the EU’s message had always been that it is for the Ukrainian people to decide their own future.

To help Ukraine, the Commission created an aid package of at least €11 billion, to be disbursed over the next couple of years, from the European Union budget and EU-based international financial institutions, Barroso said.

This figure, which is substantially higher than earlier amounts specified by the EU executive, matches the sum of $15 billion promised by Putin to Yanukovich last December as a reward for not having signed the Association Agreement (AA).

However, since Ukraine elected a government that Moscow views as illegitimate, Russia backtracked both from its aid commitment and sharply cut the price of natural gas for its struggling neighbour.

Moreover, Moscow now insists that Ukraine should pay its debt of $2 billion (€1.45 billion) to Russia’s gas export monopoly, Gazprom.

The EU offer, Barroso explained, consisted of €1.6 billion in loans under macro-financial assistance, €1.4 billion in grants, of which €600 million can be disbursed in the next two years, another €3 billion from the European Investment Bank, as well as €5 billion from the European Bank for Reconstruction and Development (EBRD).

Asked how much of this funding was fresh, Barroso said that €610 million had already been approved, and the rest was new.

Barroso also made it clear that the offer was conditional of Ukraine signing an agreement with the International Monetary Fund (IMF). He didn't mention the AA.

'Situation has changed'

Commission experts later explained that the EU executive had started work on an aid package well before the 28-29 November Vilnius Eastern Partnership summit, at which Ukraine was expected to sign the AA.

At that time there was no clear commitment for reforms, they said, but now the situation had changed. The principle of "more for more" has been applied, referring to the EU tactic of rewarding countries in its neighbourhood who implement Brussels-inspired reforms.

Experts also said that the figures presented were "conservative” and that realistically, the contributions from the IMF, the EBRD could be significantly higher. They explained that the leverage effect of grants under the so-called Neighbourhood Investment Facility were 1/18, meaning that for every euro of EU money, 18 euros could be raised from international financial institutions.

The EU was ready to offer favourable trade terms to Ukraine, as part of the Deep and Comprehensive Free Trade Agreement, which accompanies the AA, as soon as it is signed. This means that duties on Ukraine’s goods would be cut, amounting to 500 million euros a year from industrial goods, and 400 million from agricultural products.

On energy, the EU plan is to make sure that Ukraine benefits from reverse gas flows from Slovakia, in addition to existing gas imports from Poland and Hungary.

No EU money to pay Gazprom

Commission experts, however, apparently dismissed a statement made by Energy Commissioner Günther Oettinger, who reportedly said on Tuesday that the payment of Ukraine's Gazprom bills played an influential role in the Union's assistance package. The experts made it clear that the EU package was not about paying outstanding debts, but rather for investing in reforms. Ukraine currently owes Gazprom some $2 billion (€1.45 billion).

Part of the package is also an acceleration of the lifting of visa requirements for the short-term travel of Ukrainians to the EU’s Schengen zone.

Experts said that only a few steps remained before the Commission could propose the lifting of the visa requirement, specifically Ukraine's adoption of legislation introducing biometric passports, asylum and anti-corruption laws, as well as legal protections against discrimination.

Ukraine mobilised for war on Sunday (2 March) and Washington threatened to isolate Russia economically after President Vladimir Putin declared he had the right to invade his neighbour in Moscow's biggest confrontation with the West since the Cold War.

Putin secured permission from his parliament on Saturday to use military force to protect Russian citizens in Ukraine and told US President Barack Obama he had the right to defend Russian interests and nationals, spurning Western pleas not to intervene.

Russian forces have already bloodlessly seized Crimea, an isolated Black Sea peninsula where Moscow has a naval base.

As Western countries considered how to respond to the crisis, the United States said it was focused on economic, diplomatic and political measures, and made clear it was not seriously considering military action.

The Group of Seven major industrialised nations, condemning the Russian intrusion into Ukraine, suspended preparations for the G8 summit that includes Russia and had been scheduled to take place in June in Sochi, site of the recent Winter Olympics.

Finance ministers from the G7 said they were ready to offer "strong financial backing" to Ukraine, provided the new government in Kiev agreed to pursue economic reforms sought by the International Monetary Fund.

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