EU deal on Ukraine loan could boost UK if it agrees to help pay costs | European Union
Britain could reap greater benefits from a €90bn (£78bn) EU loan to Ukraine if it agrees to help pay the cost of borrowing, after European countries signed off on long-awaited financial aid for Kiev.
British firms could have greater opportunities to supply defense equipment to Ukraine, financed by loans, if the government agrees to make a “fair” contribution to EU borrowing costs.
Senior EU diplomats meeting on Wednesday approved the long-awaited loan to Ukraine, which includes the new element of a more open door to the UK.
The UK clause, which includes a requirement for a UK financial contribution, was approved on Monday, according to three diplomatic sources. But EU member states will need to hold further talks on how to include the UK, including agreeing a list of products that can be purchased from British suppliers.
The decision came after British Prime Minister Keir Starmer signaled that he wanted to restart negotiations on a defense agreement with the EU. Negotiations to join the EU’s €150 billion Security Action for Europe (Secure) program failed last year.
While the current Secure plan moves forward without the UK, the loan to Kiev offers a more urgent route for the EU and the UK to find rapprochement on defence.
The loan is a crucial lifeline for Ukraine, which has been subjected to months of brutal Russian attacks that have damaged energy and heating systems, leaving people cold and in the dark and the country in the grip of a bitterly cold winter.
EU leaders agreed last year to lend Ukraine money to cover a critical financing gap in 2026 and 2027; because Kiev was at risk of running out of money needed to finance its defense and pay public servants and pensions.
The loan will be financed by borrowing from capital markets, secured against unused spending in the EU budget. EU leaders decided on this solution after failing to agree on the alternative of securing the loan against Russia’s frozen assets.
According to the plan, 60 billion euros are allocated for Ukraine’s defense and 30 billion euros for general budget support.
The EU said Ukraine would need to buy military equipment from domestic suppliers, the EU or closely related countries such as Norway. However, if critical kits are not available in these countries, Kiev can get permission from Brussels to purchase them from other countries, including the United States.
The aim is to ensure European choice but give Kiev flexibility to purchase US Patriot missile defense systems, for example.
The updated version of the proposal approved on Wednesday includes two new clauses aimed at giving Kiev greater flexibility to buy from non-EU countries that have signed security agreements with the union.
One article targets England. Ukraine will be allowed to purchase military equipment from a country that pledges to “make a fair and proportionate financial contribution to the costs resulting from crime.” [EU] Borrowing commensurate with the value of contracts won.” Additionally, the country must have a security and defense partnership with the EU and be able to demonstrate that it provides “significant financial and military support to Ukraine.”
The UK and the EU signed a security and defense partnership last May as part of the reset.
An EU diplomat told the Guardian that it made sense to open up the possibility of Ukraine buying arms from the UK and the UK contributing financially. “It is natural to ask the UK to participate in interest repayments in proportion to the contracts UK firms will receive. Otherwise EU taxpayers would be subsidizing UK industry.”
No figure was offered for the UK’s “fair” financial contribution. Some sources say this is a deliberate effort to avoid a heavy focus on funding, while others say it would be impossible to offer a UK contribution without knowing the UK’s potential involvement.
Ahead of Wednesday’s decision, a UK government spokesman said: “We do not comment on internal EU processes.”
The loan must now be approved by the European parliament in order to release the first tranche of funds from April.
According to EU estimates, €90 billion covers two-thirds of Ukraine’s financing needs, with other “international partners” expected to fill the gap.
Asked whether the UK would be one of the countries that would contribute to Ukraine’s financing, the government spokesman said: “The UK has committed a total of £21.8 billion in support to Ukraine through military and financial aid.
“Our support for Ukraine is firm. We continue to work with G7 and EU partners to ensure Ukraine can defend itself.”
The decision was taken under a special procedure involving 24 of the EU’s 27 member states after Hungary, the Czech Republic and Slovakia refused to support but agreed not to block the plan.
