EU’s war fund for Ukraine stuck in debate around solidarity

An agreement on reimbursing member states for their donations to Ukraine remains out of reach, as Paris and Berlin are not giving in on their demands to reshape the facility according to their national priorities.

On Wednesday (21 February), EU ambassadors did not manage to overcome their differences to move toward a deal and fix the rules and top up the EU’s European Peace Facility (EPF), which was used for two years to reimburse member states for their donations to Kyiv.

The discussion has run into Franco-German resistance, with both countries wishing to set up new rules for the fund rather than continue with the EPF’s current modalities.

Both countries expressed their doubts right after the EU diplomatic service (EEAS) proposed in July to create a Ukraine-only fund, dubbed the Future Ukraine Assistance Fund (UAF), worth €20 billion over five years.

An argument for the hold-up is that military aid from Ukraine is mainly no longer coming from the EU member states stockpiles but rather from procurement, and therefore, the logic of reimbursement must change.

The new fund is “aimed at ensuring sustainable and predictable military support to Ukraine”, an internal EU note to the member states, seen by Euractiv, urging for a swift adoption.

“No one is 100% happy with the draft text,” one EU diplomat said.

But “all member states agreed that we should reach an agreement in March, before the European Council,” a second diplomat said about the timeline set at the January EU summit.

Franco-German brake

Berlin and Paris are stepping on the brakes and not backing down from their demands, according to people with knowledge of the discussions.

Germany, the largest donor of bilateral aid to Ukraine according to the Kiel Institute, has been the largest contributor to the EU fund, with contributions calculated based on national income, and wants concessions about how contributions are calculated.

Meanwhile, France insists on a “Buy European” clause for defence equipment purchases to ensure any gear purchased with EU money is also manufactured inside the bloc.

So far, the EU’s diplomatic service has not given way to those, according to a series of four non-papers seen by Euractiv.

The UAF’s goal is to “deliver more and better operational support to Ukraine, complementing bilateral efforts” via member states’ “joint procurement through European industry” and the ‘train and equip’ provided through EUMAM Ukraine, the latest explanatory memo read.

The paper reads that Ukraine’s most urgent needs for the beginning of 2024 include air defence, artillery systems, ammunition, drones, electronic warfare, F-16 fighter jets, coastal defence, and communication systems.

Non-lethal capabilities, such as military medical capabilities for evacuation and first aid kits, demining and logistic capabilities such as cranes and forklifts, are also listed as urgent, next to the maintenance and sustainment of donated equipment, including access to spare parts, as well as training for the armed forces.

While the draft decision and explanatory note tabled by the EU’s diplomatic service in the past weeks partly consider the French’s request, the German’s take is not featured in the proposal.

43% reimbursement rate, not 100%

Germany, somewhat supported by the Czech Republic, wants a rebate which would effectively lower the overall amount of the fund.

It proposes to deduct the entire value (100%) of its direct donations to Kyiv from its contribution to the fund, while reimbursements, however, only cover around 50% of the value of each piece of equipment. It also wants its contribution to be calculated based on pledges rather than real-life contributions.

The EPF is only used to reimburse equipment that matches the Ukrainian needs as requested by Kyiv, while all in-kind direct donations may not fall under that category.

EU’s diplomatic service has been against the German idea since the beginning, which it says will degrade the ‘solidarity’ spirit of the facility.

The only possibility to” offset” offered by the bloc’s diplomatic service and stated in the draft legal text would give member states the right “to offset the value of the reimbursement to be received for their support delivered to Ukraine in-kind, under the EPF against their ordinary financial contributions due in the same year, by the implementing rules of the Facility and the principle of sound financial management”.

In addition, the reimbursement will be set at a fixed rate of 43% for deliveries from stocks, unilateral and joint procurement (not for EUMAM), instead of ad hoc agreements, the additional memo goes, or the 100% rate asked by the Germans, according to the latest memo.

Only €1 billion for the joint procurement

France, supported by Greece and Cyprus, is pushing to use the fund only to reimburse EU-made jointly procured equipment to boost the bloc’s industrial base – a long-standing demand.

However, according to the draft proposal, France would only see €1 billion from the €5 billion earmarked to incentivise new deliveries from joint procurement contracts signed in 2024, including through partnerships between the European, Norwegian and Ukrainian defence industries.

The rest of the money would be allocated to ‘train and equip’ the Ukrainian armed forces via the EU training mission EUMAM Ukraine (€500 million), €850 million would cover existing reimbursement requests until the Ukraine Fund is set up and €2,65 billion for new deliveries from stocks and unilateral procurement in 2024 during a transition period to be determined.

[Edited by Alexandra Brzozowski/Alice Taylor]

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