The European Union leads the financial support to a Ukraine at war

Tanks and euros, military and financial aid. These are the lifelines that sustain Ukraine, and they do so thanks to the support of the United States and the European Union. While US aid consists mostly of weapons, European aid is mainly financial.

The EU has offered Ukraine 30.3 billion euros in financial aid and the US 25.1 billion, according to the Kiel Institute for the World Economy.

At the start of the war, neither the US nor the EU had adequate tools to send money to a country at war. Neither are international financial institutions, such as the IMF and the World Bank. Help mechanisms are designed precisely not to do this. To finance a country at war is to encourage further conflict.

This principle, however, changed with the Russian invasion of the Ukraine. At first, the US was much more agile than the EU. The community bureaucracy and the need to reach a consensus among the 27 made aid from Brussels messy and slow.

The EU, however, corrected these dysfunctions at the end of last year and is now able to send Ukraine 1.5 billion euros every month. It is almost a third of the 5,000 million that, according to the IMF, the country needs to function.

Wars are expensive and more so when the enemy destroys the industrial and energy infrastructures on which the local economy depends. Ukraine, for example, has largely lost the ability to produce electricity and distribute fuel. GDP fell 30.4% last year.

Still, the country works. There is money in the ATMs. The Central Bank has set up electric generators to keep them running when the power goes out. Civil servants receive their salaries and retirees receive their pensions. The trains keep running.

Ukraine was a country in clear growth when Russia invaded it in 2014 and again in 2022. In 2021, for example, it had cleaned up the financial sector and put in place several anti-corruption instruments. Despite the pandemic, the debt did not reach 50% of GDP.

This discipline allowed it to receive credits from the IMF, the United States and the EU.

EU financial support is now essential. The IMF does not yet have adequate mechanisms to help Ukraine. It is the lender of last resort, but only to countries that agree to its terms, and Ukraine is not in a position to guarantee repayment of the loans. The guarantees that the G-7 countries have promised are difficult to achieve.

The IMF, for example, has granted Ukraine credits worth 2,700 million dollars, but the maturities add up to 2,300. “It’s not practical,” warns Oleksandra Betliy, an economist at the Kiyv Institute for Economic Research. “The IMF’s reluctance to put money into a country at war punishes Ukraine for Russian aggression. Has no sense”.

While the IMF looks for a way to solve this nonsense, the EU seems to have already succeeded. It has not been easy because the founding treaties of the Union also prevent financing a country at war. Loans cannot be used to buy weapons. The entire legal architecture of the European Union is designed not to get involved in conflicts and to favor trade. There are three countries, in addition, that are neutral: Austria, Ireland and Malta.

As much as France insists on strategic autonomy, that is, on an autonomous military force, the weight of the EU lies in its regulatory capacity and in the soft power that emanates from its institutions.

European leaders insist that the defense of human rights and the requirement that only products manufactured according to very specific criteria of technical quality, work ethic and respect for the environment can enter the single market, do more to transform the world. than military and development aid.

The EU, however, has moved from being careful not to provoke conflicts – they are bad for trade – to offering arms and money to Ukraine. This change has been possible thanks to the insistence of the head of community diplomacy, Josep Borrell.

A long career in the European institutions -he presided over Parliament- has allowed Borrell to overcome the barriers raised by treaties and budgetary commitments.

Thanks in large part to this pressure, the EU today has a common fund to arm Ukraine and finance its administrative needs.

The 27 contribute to the European Peace Facility (European Mechanism for Peace) based on their economic weight and then request reimbursement from this common fund for the military material they send to Ukraine.

Thanks to this fund, 325 main battle tanks, 36 attack helicopters and 200 rocket launcher systems have been sent to Ukraine.

Forty-two countries offer military aid to Ukraine. The greatest effort in proportion to the volume of their economies is made by the Baltic republics. Then Poland. Neighboring countries are very clear about what is at stake.

The United States and the EU, too, but the need to support Ukraine coincides with other unprecedented financial efforts, both to overcome the pandemic and to face the ecological transition and repatriate part of the production that until now had been entrusted to China. There is fear, above all, in the US that a new parliamentary majority will choose to reduce aid. Hence, the financial effort of the EU is even more necessary.

It is also difficult for the EU to send heavy weapons. The commitment to hand over Leopard 2 main battle tanks to Ukraine is very illustrative. Despite commitments, the target of 62 tanks needed to form two battalions has not yet been achieved.

In the armies of the 27 EU countries there are more than 2,000 Leopards of different models. Spain, for example, has 108 of the 2A4 model, but it only sends 10. These ten also need a thorough review to be operational.

The percentage of European Leopards that are damaged or obsolete is not known. The Netherlands, Germany and Denmark have offered the older model, the 1, but the instructors who can train Ukrainian soldiers are retired.

That is why it is easier for the EU to offer financial help than military. This aid should not be limited to the duration of the war, as the Ukrainian authorities have already warned, it will be necessary to extend it as long as necessary to rebuild the country.

The Kiyv Economic Research Institute calculated at the end of the year that the value of the destroyed buildings and infrastructure reached 136,000 million dollars, that is, two thirds of the pre-war GDP. Several institutions, such as the German Marshall Fund, have drawn up financial plans with reconstruction in mind.