EU leaders are due to meet in Brussels next week in an attempt to secure approval for the loan, which is designed to cover roughly two-thirds of Ukraine’s funding needs as it continues to defend itself against Russia’s invasion. However, several member states are quietly preparing alternatives should Hungarian Prime Minister Viktor Orban and Slovak Prime Minister Robert Fico maintain their vetoes.
A drone attack in January damaged the Druzhba pipeline that supplies both countries with Russian gas and Kyiv has been dragging its heels on repairs, which Ukrainian President Volodymyr Zelenskiy said this week will take at least another month and half to complete. Bratislava and Budapest say they will not approve any aid for Ukraine until flows of oil and gas resume.
The €90bn loan is enough to cover two thirds of Ukraine’s needs, according to a recent paper from Kyiv School of Economics (KSE), but without that money, Ukraine faces macroeconomic collapse as soon as April as the state effectively goes bust.
The IMF has stepped in and bought some short-term relief by pushing through its $8.1bn Extended Fund Facility (EFF) and has already approved the release of the first $1.5bn tranche but that will only extend the stay of execution by about a month.
Two EU diplomats told Politico that Baltic and Nordic countries are mulling a stopgap plan that would provide Ukraine with €30bn of bilateral loans, enough financing to remain solvent through the first half of the year until September.
Because such loans would be arranged directly between governments, they would not require unanimous EU approval, bypassing Budapest and Bratislava.
“It’s not the first time we are facing a similar kind of difficulties with Hungary,” Valdis Dombrovskis, European Commissioner for Economy and Productivity, said in response to a question from Politico. “We will deliver on this loan one way or another.”
Separately, Dutch finance minister Eelco Heinen told EU counterparts this week that The Hague has already made provisions to provide Kyiv with €3.5bn annually in bilateral support through 2029, according to diplomats briefed on the discussions.
Third line of defence
The Central European vetoes come at the worst possible time for Ukraine and highlight the growing disunity in Europe as the support for Ukraine falls from the full 27 member block to a reduced “coalition of the willing” lead by the E3 of France, Germany and the UK, which is not even a member of the EU any more.
The stop gap €30bn bilateral loan is also the third line of defence for Europe to keep Ukraine in the game. The original idea was to use the frozen $300bn of Russian central bank money as a Reparation Loan that would have made no use of EU money at all. But that idea was shot down by objections by Belgium and Italy at the summit in December.
The EU delegates then retreated to the second line of defence: a €90bn loan that would be raised from the market as collective debt, backed by the EU budget. The idea of a EU collective debt – a European analogy of US treasury bills issued at a federal level – is new and has only been done once before at scale: the COVID recovery programme (NextGenerationEU) bond, the first large-scale, long-term collective EU debt issuance of €750bn to pay for a post-pandemic recovery split into annual tranches that comes to end this year. The €90bn Ukraine loan is another one of these collective bonds.
They are not popular. Germany in particular, has resisted the idea of issuing EU collective debt as Berlin is uncomfortable with being on the hook for obligations it shares with the likes of Greece. However, after the Reparation Loan failed it was agreed to issue collective debt, spread the load, or face Ukraine’s economic collapse.
Now it looks like this second line of defence will fail too, so the EU has retreated to its third line of defence: bilateral loans. These are simple credits issued by individual countries to Ukraine on a bilateral basis that are backed by national budgets, not the EU collective budget.
Of the options for funding Ukraine this was always the least popular as it makes use of taxpayers money. Moreover, multiple rows broke out over how much each country should contribute to the loans. Berlin, for example, wanted to be exempted from the scheme, arguing that it was already the biggest donor to Ukraine on the basis of loans and weapons supplies it has already donated, more than any other EU country.
Now painted into a corner and no alternatives left, if Europe wants to prevent Ukraine’s collapse it will have to issue bilateral debt. Notably it is Nordic supporters in the northeast corner of Europe that are backing the scheme, who are Ukraine’s most ardent supporters, the most generous contributors to aid so far in a share of GDP basis and the most scared of Russia’s aggression as they would be on the frontline if Russia decided to attack Europe.
Hoping for respite
Hope that Orban and Fico can be persuaded to change their minds and allow the €90bn loan to go through are not dead yet. Both countries have already secured an exemption from participating in the loan and already promised to not veto the decision, which has to be unanimous, until the Druzhba pipeline row broke out.
Orban has accused Kyiv of deliberately delaying repairs to the pipeline for political reasons and now refuses to support the plan, while simultaneously blocking the EU’s twentieth sanctions package that also restricts Russian oil and gas exports to Europe, which also requires unanimous approval.
Ukrainian President Volodymyr Zelenskyy has rejected the accusation, saying the pipeline remains vulnerable to further Russian attacks.
A decision needs to be made quickly as the IMF money will run out in a month and even if the €30bn bilateral loans are approved, another solution needs to be found by September.
That might be possible, as Orban faces a general election in April and is currently trailing badly in the polls and looks likely to lose his job. His opponent, Peter Magyar, has also taken a hard line on Ukraine and also opposes Hungarian funding for Ukraine, but it is hoped that he will be more accommodating and will not veto the Ukraine votes any more, only abstain, particularly if the Druzhba pipeline is repaired and the oil and gas import exemptions are extended. Hungary has also applied for €16bn in loans under the bloc’s SAFE defence procurement programme that the EU could release as a sweetener.
Slovakia may prove easier to persuade. Although Fico has aligned with Orban in opposing the loan, EU officials say discussions with Bratislava are progressing and Slovakian prime minister has proven to be more flexible in the past.
After meeting European Commission president Ursula von der Leyen in Paris this week, Fico said the pair had “discussed the need to restore the transit of Russian oil through Ukrainian territory to Slovakia,” adding: “I am glad that on this issue, we share the same view with the European Commission.”
EU strapped for cash
The problems with raising money for Ukraine come at a terrible time for Brussels when money was already incredibly tight. The EU has two massive €800bn bills to meet: one to fund the ReArm defence modernisation programme, and the other to fund the investment into innovations and comparativeness called for by the Draghi report in order to stay in the game in the competition with the US and China. On top of that, the Ukraine cost of war is around €100bn a year that now falls entirely on Europe’s shoulders. Since he took over Trump has sent no money to Ukraine and the US used to provide around 40% of its funding.
The first ten days of the war in Iran cost the EU an extra €3bn. Brussels is heavily exposed to rising oil and gas prices as a result of the 2026 oil shock. European Commission President Ursula von der Leyen said that the war in the Middle East caused gas prices to rise by 50% and oil prices by 27%, costing the EU an extra €3bn. Those increases are going to be particularly painful as Europe is already sliding into another gas crisis.
As a result of the closing of the Straits of Hormuz, the EU will be forced to compete with energy-hungry Asia for a reduced supply of largely US LNG. Indeed, a reported three LNG tankers that were on their way to Europe have already turned round and rerouted for better-paying Asian customers.
Another inflation shock is on its way, caused by the jump in energy costs. If sustained, a 20–30% increase in oil prices could raise EU inflation by roughly 1.5 -- 2.5 percentage points this year, according to the Institute of International Finance (IIF). The same shock could reduce the EU’s growth by about 0.5-0.75 percentage points over the following year at a time when growth was already expected to be anaemic.
“Gas markets remain central to Europe’s inflation dynamics because gas prices strongly influence electricity costs,” IIF said. “Europe’s recent disinflation was driven largely by falling energy prices, leaving inflation sensitive to renewed shocks. Europe is now less vulnerable to supply disruptions but more exposed to global energy price volatility.”
The 2026 oil shock is going to affect Europe very differently from the 2022 energy shock as it was heavily exposed to Russian gas deliveries in the last crisis but in the meantime it has replaced most of that by importing an energy leading to a new dependency on American LNG which is almost as were as bad as the last one the Russian one.
Without Qatari gas on the market the competition for US LNG is going to be fierce. Moreover, Russian President Vladimir Putin is fuelling the problems by turning the tables on Europe and threatening to cut off gas supplies before the EU's own deadline to ban imports of Russian gas completely by January 1.
As bne IntelliNews reported, Europe cannot afford to support Ukraine on its own as it is grappling with its own multitude of economic problems. Both the UK and France are close to debt crises and Germany is rapidly running into problems as its economy slows but spending accelerates.
