Diplomats from member states meeting in Brussels on Wednesday emerged with a €5 billion deal to revamp aid to Ukraine.
The initial agreement struck by ambassadors will, in theory, pour another €5 billion into the European Peace Facility (EPF) over the remaining months of the year.
The EPF is an “off-budget” scheme since EU funds cannot finance expenditures with military implications. Since the Russian invasion, the fund has been the principal means for the EU to provide military aid to Ukraine.
However, topping up the fund got mired in controversy several months ago and member states could not agree on how each country should contribute. France wanted a provision that only military supplies produced in the EU be donated to Ukraine and Germany insisted on allowing in-kind donations.
In the end, Germany’s position won out. Under the agreement, member states must prioritize EU-made weapons but can donate weapons and supplies produced abroad if the bloc’s defense industry is unable to provide what is needed. Also, an unspecified part of the €5 billion is designated for joint purchases of military equipment.
Most significantly, member states can deduct in-kind donations from what they owe to the fund, at a rate of up to 50% (each member state is responsible for the portion of the €5 billion that corresponds to its size). Politico reports that diplomats at the meeting explained that it doesn‘t mean member states can make half of their donation in military equipment. The fine print specifies that for every €2 worth of military equipment donation member states can deduct €1 from their required donation to the fund—with no limit on deductions for in-kind donations.
At the same time, while negotiations stalled, member states have, in fact, continued donating military equipment to Ukraine on their own. As part of the agreement, these donations also count in the in-kind deduction scheme.
Germany, for example, has been the leader among EU member states in donating to Ukraine, having given €17.7 billion for military supplies to Ukraine. Now it is responsible for €1.2 billion a year into the EPF, but as long as it gives at least €2.4 billion in weapons to Ukraine, Germany won’t have to donate an actual cent to the fund. According to Politico, Germany has technically already met its commitments to the EPF for this year through in-kind donations, so it’s unlikely that the country will donate any cash.
Diplomats said it is theoretically possible that no actual money reaches the EPF under the agreement.
Although the actual topping-up of the fund may all be a mirage, the deal’s structure has its advantages. Some member states consider the fund a bureaucratic hassle because donations are given into the fund and then have to be redistributed to countries. Each country donating directly is more efficient.
According to the Kiel Institute, Germany leads the bloc in donations to Ukraine with €17.7 billion, Denmark comes next with €8.4 billion and the Netherlands with €4.4 billion. Meanwhile, Italy has donated €0.67 billion, France €0.64 billion and Spain €0.33 billion.
