EU Borrows Jointly for Ukraine – Interest Could Cost Three Billion Euros Per Year

The EU’s member states have agreed to take out joint loans to secure continued financial support for Ukraine’s war chest. The solution will plug urgent budget gaps – but at the same time means billions in interest costs for the union’s taxpayers for many years to come.

After intense overnight negotiations, EU leaders recently decided to raise about €90 billion in joint loans over the next two years. The money will be guaranteed via the EU’s long-term budget and aims to ensure that Ukraine does not run out of war financing as soon as this spring.

The background is that next year Ukraine is expected to have a budget deficit of nearly €72 billion, as the war against Russia continues with no sign of a quick resolution. The country is thus in acute need of external funding to maintain both military defense and basic societal functions.

Not All Countries Share the Debt

Three member states – the Czech Republic, Hungary, and Slovakia – have opted out of the debt responsibility itself. However, they have accepted the arrangement and promised not to block support for Ukraine. To enable this, the European Commission will propose a system of so-called enhanced cooperation, under which the remaining 24 countries will jointly take out the loans within a separate legal framework.

The new scheme largely builds on the structure of previous support packages. Disbursements will occur in stages, combined with anti-corruption requirements and clear guidelines for how the funds are to be allocated between military needs and the state’s current expenses.

Sweden’s Prime Minister Ulf Kristersson and Ukraine’s President Volodymyr Zelenskyy. Photo: Government of Ukraine

Frozen Russian Assets – a Stalemated Issue

EU leaders chose joint borrowing after failing to agree on a more controversial alternative: using the proceeds from frozen Russian assets as collateral. Opposition, especially from Belgium where a large portion of the assets are held, put a stop to that plan.

The Belgian resistance was mainly due to demands for far-reaching financial guarantees if Russia’s assets were to be used – something the other member states were not prepared to accept.

Costly Interest in the Long Run

However, taking on joint loans is no cheap solution. According to data from the European Commission, interest costs are expected to amount to about three billion euros per year from 2028 onwards, financed by draining the EU’s multiannual budget, which is actually intended for entirely different purposes. Already in 2027, interest costs are estimated at around one billion euros.

The loans themselves are formally directed toward Ukraine, but repayment is conditional. The country will not begin to repay until the war is over and Russia has paid war reparations – something that currently appears uncertain.

Uncertain Repayment – EU May Have to Bear the Debt for a Long Time

If repayment does not materialize, the EU may in practice have to extend the loans or, in future, revisit the issue of using frozen Russian assets. Such a step would require a new political decision – and the member states remain far from agreement on that point.

The result is that the EU is now assuming long-term financial responsibility for Ukraine’s survival and war effort, with potential costs that stretch far beyond today’s budget periods.