31
JAN
2024
The background to the fierce disputes over financial aid for Ukraine is the desolate budgetary situation in which the country finds itself. State revenues collapsed in 2022 due to the war; at the same time, expenditure on the armed forces has skyrocketed massively. The budget deficit is enormous. Last year, it was possible to cover it to some extent thanks to external support. The largest donor of budget aid was the EU with about 19.5 billion US dollars. 10.9 billion US dollars came from the USA, while Japan, Canada and Great Britain, the International Monetary Fund (IMF) and the World Bank also provided billions. A huge budget deficit is also expected this year; we are talking about 36 billion US dollars. 1] For the next four years, the IMF expects a shortfall in the Kiev budget of 85 billion US dollars. Of this, 41 billion US dollars would come from the EU's 50 billion euro package, which contains other aid in addition to the budget. The IMF wants to provide eleven billion US dollars. The remaining 33 billion US dollars would probably have to be the United States and Japan in particular.
The shortfall in the Kiev state budget can even increase significantly this year. The reason is that President Volodymyr Zelensky wants to mobilize around half a million additional soldiers. The new troops, if they were actually excavated, cost quite a lot of money. In addition, the soldiers are then no longer available as civilian workers. There is already a serious shortage of personnel today: "Finding workers is a huge problem," the head of a Ukrainian agricultural company is quoted, for example. Quite independently of this, it is now becoming clear that the United States will hardly act as a donor in the long run - because even with a new election victory by US President Joe Biden, this would be opposed by the strong position of the right wing of the Republicans in the US Congress. It is becoming "increass clear" that "the EU is the financial lifebuoy for Ukraine," it was said yesterday Monday, for example, in the Neue Zürcher Zeitung; the Union must "adapt to a long phase as a financial supporter." 2] Because "without continuous help" from the West, it was continued, Ukraine is inevitably "doomed" with regard to its financial situation.
This explains in large part why the EU is currently insisting on integrating its 50 billion euro aid package into the EU budget and thus definitively stipulating it today: If the plan succeeds, then Kiev would have covered almost half of its already clearly foreseeable budget deficit relatively reliably for the next four years. Accordingly, Brussels is putting strong pressure on Hungary to give up its previous opposition to the adoption of the package at the EU special summit tomorrow Thursday. According to a report by the Financial Times, internal documents of the EU provide for a serious economic attack on the country if the Hungarian Prime Minister Viktor Orbán is again refused approval. According to this, the heads of state and government of the Union should officially declare that they plead for Budapest to cut all EU funds. 3] This is expected to be enough to trigger a hard shock in the financial markets, to let the Hungarian currency collapse sensitively and to prevent foreign companies from new investments in Hungary. The Hungarian government must expect additional expenditure on the repayment of the national debt; growth, but also jobs, were at risk.
In order to find additional funds for the financial stabilization of Ukraine, the EU is also preparing to collect future profits from more frozen Russian assets. According to consistent reports, of the approximately 260 billion euros of Russian currency reserves frozen in the West, about 191 billion euros are in the EU and there mainly with the Belgian financial service provider Euroclear. On Monday evening, the EU ambassadors in Brussels agreed to grab the profits from the frozen funds and make them available to Ukraine. 4] Accordingly, the EU claims that this is possible "in accordance with the applicable contractual obligations" as well as "in accordance with ... international law". However, the planned recovery should not be carried out retroactively, but only from now on. The plan is now to be moulded into legally supposedly safe forms and then officially adopted. In this way, around 15 to 17 billion euros can be confiscated within the next four years and forwarded to Kiev, it is said. This would cover almost half of the mentioned not yet secured 33 billion US dollars.
In both cases, the EU is taking qualitatively new steps with possibly serious consequences in order to find the necessary funds to support Ukraine. The plan to launch a serious economic attack on a Member State, should it not cooperate as desired, sets a precedent and threatens any government that intends to oppose the EU's major powers in the future. The plan to skim profits from frozen foreign assets and to spend them at their own discretion is a signal to investors from all over the world that their assets are not safe in the EU; for this very reason, the European Central Bank (ECB), concerned about the EU financial center, had explicitly warned against the project - in vain. In addition, not only Russia, but also other states can take the opportunity to make their amiable to the profits of European, including German assets, invested in their territory. There are plenty of reasons for this - from revenge for the taking of Russian profits by the EU to the retention of reparations never paid and compensation for war and colonial crimes of the European powers, especially Germany.
The EU's financial support for Kiev is designed in such a way that Ukraine will emerge to a high degree of debt from a war that has ended. Ukrainian public debt has already risen from around 50 percent of economic output at the beginning of the war to around 90 percent. 5] They continue to increase continuously. For example, the EU wants to award only 17 billion euros from the 50 billion euro aid package as a grant; Ukraine receives 33 billion euros only as a loan that must be repaid sooner or later.
[1], [2] Daniel Imwinkelried: With the Ukraine war, huge burdens are coming to Europe. New Zurich Newspaper 30.01.2024.
[3] Henry Foy, Andy Bounds, Marton Dunai: Brussels threatens to hit Hungary's economy if Victor Orbán vetoes Ukraine aid. ft.com 28.01.2024.
[4] Alexandra Brzozowski: Ukraine reconstruction with profits from frozen Russian assets. euractiv.de 30.01.2024.
[5] Daniel Imwinkelried: With the Ukraine war, huge burdens are coming to Europe. New Zurich Newspaper 30.01.2024.