G7 plan changed due to Hungary's veto: EU urgently allocates 35 billion euros to Ukraine. What is wrong with this loan

During her visit to Kyiv, European Commission President Ursula von der Leyen announced a €35 billion loan to Ukraine as part of the G7's plan to provide Ukraine with $50 billion from future revenues from frozen Russian assets. This is a compromise financing option aimed at circumventing Hungary's veto. The plan is associated with several risks, including for budget stability and army funding, which are already being discussed in Ukraine.

Von der Leyen herself announced the allocation of funds on page in X. "Russia's continuous attacks mean that Ukraine needs further support from the EU. The European Commission will provide Ukraine with a loan of up to €35 billion as part of the G7 pledge. This is another major contribution of the EU to Ukraine's recovery," the statement said.

As President Volodymyr Zelenskyy clarified at a joint press conference with von der Leyen in Kyiv, the EU funds will be spent primarily on energy. "Also on bomb shelters for children in schools, kindergartens, universities... And on weapons, primarily of domestic production. Our missiles and drones hit the enemy, and they are cheaper than those from our partners... We are ready to spend part of these funds on air defense," Zelenskyy said, according to an OBOZ.UA correspondent.

Also, according to Zelenskyy, he discussed with von der Leyen plans for future financing. In particular, what supplies Ukraine needs and how much money is needed for this.

"I want to thank you, especially for the announcement yesterday of additional EU energy support for Ukraine in the amount of about 160 million euros. These are funds specifically for winterization, and 100 million of them are provided from the proceeds of frozen Russian assets," Zelenskyy said.

Earlier, three sources told the Financial Times (FT) about the EC's plan in detail. According to them, the announcement of this decision was the main reason for von der Leyen's trip to the Ukrainian capital.

The publication recalled that back in June 2014, the G7 leaders agreed to provide Ukraine with $50 billion in loans guaranteed by frozen Russian assets. This means that for Ukraine, this money would ultimately be grants that do not need to be returned. According to the plan, the funds were to be divided according to the economic performance of the G7 countries. That is, the EU and the US would have covered $20 billion each, and the rest would have been allocated by Canada, Japan, and the UK.

However, the condition for the US to allocate funds was the official extension of the seizure of Russian assets in the EU, where almost 200 billion euros are located. The European Union has not yet been able to make this decision because of the veto imposed by the Hungarian government, headed by Viktor Orban.

"To compensate for the 'no-show' of the Americans and to circumvent Budapest's veto, the European Commission tried to increase its share in the loan to 40 billion euros, guaranteed by the bloc's general budget. But the EU capitals rejected this figure, putting pressure on Brussels to have the UK, Canada, and Japan increase their shares. The final amount of €35 billion is a compromise that allows the US to step in later and reduce the EU's risks. Most EU countries and the European Parliament should approve the EU loan by the end of the year," the sources explained.

Interestingly, after his meeting with von der Leyen, Zelenskyy specifically noted that it is critical to ensure the full use of the European Peace Fund and the Ukraine Assistance Fund. This will form a sustainable and predictable support for the Defense Forces. "The allocation of these funds to Ukraine, the absence of any blocking, is something that directly affects our ability to protect people's lives and our Ukrainian positions at the front," Zelenskyy emphasized.

What's wrong with the updated G7 assistance plan

MP Yaroslav Zhelezniak ("Holos") commented on the updated financing format at the stage of discussing the €40 billion loan. According to him, Ukraine expected to receive a grant of $50 billion.

Its payment was to be fully covered by the proceeds from the assets of the Russian Federation. In addition, the grant funds could have been used for critical expenditures, including military spending.

However, the new plan provides for loans that will increase the financial burden on Ukraine. Also, according to Zhelezniak, it is not known how much money will be used for military procurement for the country.

In addition, Zhelezniak drew attention to the fact that Ukraine's budget deficit for the next year will amount to $38.4 billion, while international partners have so far confirmed the receipt of only $15 billion. If the G7 grant does not arrive, it will be very difficult to cover the balance of $23.4 billion.

Analysts at the Center for Economic Strategy (CES) do not give the new format the best of assessments either. "It is good that the EU has a plan B, but it is still not as promising as the first public commitments of the G7," the experts say. In particular, they also draw attention to the fact that the funds are loans, not grants, which is an additional burden on Ukraine's external debt.

"This 20-40 billion new loan will help cover civilian expenditures in 2025, but it will not give a new impetus to the Ukrainian defense industry and will once again demonstrate the fragility of the unity of Western support for Ukraine and the inability to do anything about Hungary's pro-Russian demands," said CES economist Maksym Samoiliuk.

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