The EU and UK announced on Monday that they are entering negotiations for London to join the bloc’s €90 billion loan for Ukraine, months after similar talks over Britain’s participation in the EU’s defence loan scheme ended in failure.
The loan, greenlit in April after months of Hungarian blockage, is meant to cover roughly two-thirds of Ukraine’s financial needs over the next two years, with €60 billion earmarked for military spending. But it includes a ‘European preference’ favouring defence manufacturers from EU countries, as well as Ukraine and EEA-EFTA countries.
The UK, therefore, would be excluded.
Kyiv can ask for derogations to purchase equipment from third countries, but it needs to justify that it cannot acquire the weapon systems in the EU or not at a fast enough clip.
Prime Minister Keir Starmer billed possible British participation as a win-win-win situation.
“In relation to the EU loan that we are discussing participating in, that is very good for Ukraine, because it will give Ukraine capability that is desperately needs in year five of this conflict,” he told reporters upon arriving at a summit of the European Political Community in Yerevan.
“It’s very good for the UK, because of the capability that leads to jobs in the United Kingdom. And it’s very good for UK-EU relations, which is very important as we go on to the various discussions,” he also told reporters.
Brussels, meanwhile, welcomed the “clear political signal” from the other side of the Channel.
But a Commission spokesperson also stressed that London “must also commit to providing a fair and proportionate financial contribution to the costs rising from borrowing and that has to be proportionate to the value of contracts awarded to entities established in the UK.”
The contribution is likely to be the most contentious issue. Talks over Britain’s participation in the EU’s €150 billion SAFE programme for defence collapsed after the two sides could not bridge a significant gap over London’s financial contribution to the scheme.
Euractiv understands the UK wanted to contribute no more than €100 million, while the EU estimated the figure should be closer to €2 billion.
The Commission spokesperson said that the amount London is expected to provide “will be determined ex-post”.
“So we look at the actual value of the contract awarded in year N, and then in year N plus 1, then we can calculate the contribution that the UK would have to make to covering the interest costs,” he added. “We are ready to move forward as quickly as possible.”
Ukraine is set to receive a first €6 billion tranche from the loan before the end of the quarter. It will finance the acquisition of Ukraine-made drones, for which Kyiv received a derogation as many components come from outside the EU.
