Don’t stop Ukraine funding because of summer holidays


The European Union cannot allow Ukraine to default.

For six months, the country has been waging a war on two fronts: repelling the Russian army on the battlefield while countering an economic blitzkrig that is rapidly degrading its fragile economy. The EU is committed to keeping Ukraine’s economy afloat in the face of aggression – and it must not let bureaucratic and political dysfunction get in the way now.

Alarm bells are ringing over Ukraine’s public finances as the cost of war rises and fighting prevents Kyiv from maintaining normal trade. Last week, Ukraine had to devalue its currency by 25% against the dollar; he had to ask foreign creditors for more time to repay his debt. State-controlled energy major Naftogaz has already missed one. This fueled speculation about the state of the country’s public finances. The collapse of the Ukrainian economy – symbolized by a national default – would give Russia a huge propaganda victory and cripple Ukrainian morale. The Kremlin will present this as a humiliating defeat while claiming that the Russian economy prevailed despite Western sanctions.

This is a scenario that must be avoided.

And that’s exactly what G-7 finance ministers agreed to avoid in May when they gathered in Germany for their annual meeting. Indeed, German finance chief Christian Lindner, who had assumed the rotating chairmanship of the group, said there would be no funding problems for Ukraine thanks to a support package of around 18 billion. euros ($18.4 billion), of which, the EU would provide 9 billion.

However, since then the EU has only authorized the disbursement of a small fraction – with €8 billion still to be disbursed. The deficit is in limbo as Brussels and EU national governments have yet to work out how it will be financed. The delay not only risks worsening an already difficult situation for Ukraine, but also goes against a tacit agreement between Europe and the United States in which the Americans would supply the bulk of the heavy weapons while that the Europeans would take care of the financial aid. The EU cannot expect Washington to do the heavy lifting on both.

Brussels must find a solution to the blocked tranche of EU money before it is too late for Ukraine. Kyiv has signaled that it wants to comply with its international obligations, but cannot do so without support. All the while, Kyiv has been a reliable partner for the EU – keeping Russian gas flowing through Ukrainian infrastructure even as Vladimir Putin waged war. The EU must recognize this.

The summer break, which usually sees Brussels go on standby in August, should not be an excuse for inaction. It’s not a summer like any other: the war does not stop, nor do the financial markets. Meanwhile, Ukraine is burning reserves. According to research by Fitch Ratings, Ukraine runs a monthly deficit of around $4 billion to sustain the war effort and could see it reach 29% of gross domestic product by the end of the year. Both Fitch and S&P Global Ratings warned of a default-type scenario for Ukraine.

The gravity of the situation should serve as a warning to European authorities who are dragging their feet over a package that looks like a drop in the ocean in the face of the wider costs of war. Ukraine’s needs will become more acute as the war drags on. Even though Russia appears to have downgraded some of its targets to focus primarily on the East, Putin shows no intention of wanting anything other than a land grab and the surrender of Kyiv.

The outlook is further complicated by the fact that Europe will soon experience an energy crisis triggered by Putin in retaliation for the sanctions. Ukrainians have witnessed such militarization with grain.

Brussels may have its own problems, but that doesn’t mean it should let Ukraine down. Its credibility on the world stage depends on its follow-through. If Europe means business, it must contribute financially to the war effort.

If Ukraine loses the economic war, it will also lose militarily. Wars can rarely, if ever, be won cheaply. The battle for Ukraine is no exception.

More from this writer and others on Bloomberg Opinion:

• The era of ‘Germany knows best’ is over: Maria Tadeo

• Europe fakes solidarity, and Putin knows it: Andreas Kluth

• Putin will not use nuclear weapons. Chemical weapons, possibly: James Stavridis

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Maria Tadeo is Bloomberg Television’s European correspondent based in Brussels where she covers European politics, economics and NATO.

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