Sun. Jan 29th, 2023

Brussels, 9 November 2022


“Check against delivery”

Thank you, Valdis.

Let me now zoom in some key innovations on the funding side.

First, to finance the loans, the Commission would borrow on financial markets on behalf of the EU, and the novelty of this instrument compared to previous MFA operations is that the guarantee for the borrowing would be given by the EU budget headroom, [that is, the difference between the own resources ceiling and the ceilings of the Multiannual Financial Framework]. The possibility to use the guarantee of the headroom is limited geographically, to Ukraine, as well as in time.

As you know, this approach is already used for the provision of financial assistance in the form of loans for Member States. In order to open the headroom to Ukraine (and only Ukraine) a targeted amendment of the MFF regulation is proposed.

The advantage of using the headroom as a backstop for the loans to Ukraine is that there is no need to constitute individual new Member States guarantees, which is procedurally more complex and financially less sound for an ambitious programme.

Second, funding for the loans would be organised through the diversified funding strategy (which we currently used only for Next Generation EU borrowing) and not through back-to-back lending

This has important advantages:

    • It gives us flexibility to arrange the loans independently of the time-profile of the borrowing, so that we can structure loans that are more attractive to Ukraine;
    • The central liquidity pool, that is a core feature of the diversified funding strategy, could be drawn upon as a first resource to make rapid payments to Ukraine as needed and ensure payments to EU bond investors in all eventualities and provides additional safeguards to the EU budget;
    • It allows us to organise all EU issuances efficiently under a single funding programme, thus boosting investor demand for more liquid EU bonds and allowing all EU issuances to be priced on more advantageous terms to the benefit of all who have to bear the costs of EU issuances.

By the way, speaking of costs of issuances, which need to be taken over by Member States, I would like to underline that:

    • There is no budget impact of our proposal next year, it only kicks in, in 2024
    • A very conservative estimate for the costs of the borrowing (3.5% on the interest for 15 year maturity bonds) is €630 million  for the whole year;
    • This amount will be divided among MS according to the GNI key and means for example for Austria around 18 million and for Hungary – €6 million
    • So we need to keep things in perspective here!

To allow implementation of the diversified funding strategy, a very narrowly framed single new provision is proposed to be added to the Financial Regulation.

Let me also briefly speak about the reform agenda underpinning the Instrument.

Clearly, it will take account of the evolution on the ground. In any case, it will feature reforms to further enhance rule of law, good governance, anti-fraud and anti-corruption measures.

Moreover, policy conditions will be increasingly geared towards strengthening Ukraine’s institutions and preparing the ground for a successful reconstruction effort as well as supporting Ukraine’s efforts on its European path. We will also foresee a review clause that allows us to adapt the conditionality at a later stage if needed.

I trust in the co-legislators’ support to facilitate the legislative procedure in the Council and in the Parliament swiftly.

A quick decision-making by the co-legislators will enable the Commission to make a first disbursement in January.

This would be of utmost importance as the Ukrainian authorities’ major concern is on meeting funding needs in the early weeks of 2023. Speed is of essence and we have an ambitious package to match the needs and expectations of our Ukrainian partners as well as of our other like-minded international partners.

Source – EU Commission


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