EU tapping bond market to help fund Ukraine’s defence against Russian aggression

SINGAPORE – The European Union is tapping the bond market to help fund Ukraine in its efforts to repel the Russian invasion, along with a broad range of other policy commitments.

EU leaders had agreed in February

to provide Ukraine with up to €50 billion (S$72 billion) in grants

and “highly concessional” loans until 2027 in regular and predictable tranches to help Kyiy fund salaries and provide basic public services, among other purposes. This is on top of other forms of military assistance.

The European Commission announced in June that it plans to issue up to €65 billion of EU bonds in the second half of 2024, after the €75 billion worth of issuances completed in the first half of the year.

“We have this unified funding approach, so we raise the money for the different needs we have,” Dr Johannes Hahn, European Commissioner for budget and administration, told The Straits Times in an interview on Sept 10.

The Ukrainian government, the World Bank, the EC and the United Nations estimated at the end of 2023 that the cost of reconstruction and recovery in Ukraine

could amount to US$486 billion (S$633 billion) over the next decade.

“Right (now), the biggest share is, of course, our own NextGenerationEU, but part of it is also Ukraine, and this is something which is clearly communicated to the market,” Dr Hahn added on the sidelines of a conference promoting EU bonds to investors in Singapore.

NextGenerationEU is the bloc’s economic growth support package to help member states recover from the Covid-19 pandemic. That, along with the energy price shock triggered in part by a reduced supply from Russia following

Moscow’s invasion of Ukraine,

continues to impact economic growth in the EU, raising questions about its future competitiveness.

In a report released on Sept 9, former European Central Bank chief Mario Draghi called on the EU to invest as much as €800 billion extra a year and commit to the regular issuance of common bonds to make the bloc more competitive against the US and China.

In the long-awaited report on EU competitiveness, Dr Draghi urged the bloc to develop its advanced technologies, create a plan to meet its climate targets and boost defence and security of critical raw materials.

“To digitalise and decarbonise the economy and increase our defence capacity, the investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s,” he said in the report.

“This is unprecedented: For comparison, the additional investments provided by the Marshall Plan between 1948-51 amounted to around 1-2 per cent of GDP annually,” he noted.