Financial assistance

US grows increasingly frustrated with Europe’s delay in economic aid to Ukraine

Tensions are rising between the United States and its Western allies over Ukraine’s deteriorating economy, as US officials increasingly push the European Union to increase financial aid to the war-torn country.

Repeatedly this week at meetings of world financial leaders in Washington, Treasury Secretary Janet L. Yellen called on her international counterparts to step up both the speed and the amount of funds going to Ukraine. Yellen was joined in the push by Ukrainian President Volodymyr Zelensky and Ukrainian Prime Minister Denys Shmyhal, who addressed a World Bank meeting of senior finance officials virtually on Wednesday.

Yellen also raised the issue during a private meeting this week at the International Monetary Fund with European Commission Executive Vice-President Valdis Dombrovskis and EU Economics Commissioner Paolo Gentiloni, according to a person familiar with the matter who is familiar with the matter. is expressed on condition of anonymity to describe private meetings. . She raised the issue again at a subsequent meeting of all EU finance ministers, the person said.

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New projections from the World Bank last week suggest that Ukraine’s economy 35% contract this year, and the country’s financial officials say inflation could hit 40% early next year, which is close to economists’ definition of “hyperinflation.” Even as the situation on the battlefield turned in Ukraine’s favor, the country’s exports plummeted, tax revenues plummeted, millions fled and Russian attacks shattered critical infrastructure, including including the power grid.

International aid has not proven sufficient to close the gap. Zelensky said Wednesday that Ukraine needs $38 billion in emergency economic aid from the West for next year’s budget alone. This figure excludes the additional $350 billion that the World Bank has estimated is needed for Ukraine. long-term reconstruction once the war is over. The United States has disbursed $8.5 billion in economic aid and will disburse another $4.5 billion by the end of the year, while US officials say the European Union has pledged $11 billion. euros but only disbursed around 3 billion in loans.

“We call on our partners and allies to join us in quickly disbursing their existing commitments to Ukraine and stepping up their efforts – both to help Ukraine continue its essential government services and to help Ukraine begin to build and recover,” Yellen said. Tuesday.

On Wednesday, Yellen again stressed the need for quick disbursement of direct cash payments – rather than loans that have to be repaid – to help the country’s economy. Yellen’s comments were a thinly veiled reference to the EU, which has given aid almost entirely in the form of loans.

“Donors need to keep stepping up,” Yellen said. “The scale, predictability and grant component of disbursements need to improve.”

Ukrainian and American officials are careful not to antagonize their European allies with harsh public condemnations, but have nonetheless expressed their feeling that the commission is moving too slowly.

“I know they are very frustrated,” said a former senior Treasury official, speaking on condition of anonymity to reflect private conversations with Treasury management. “US officials want to see Europe deliver much faster… They want Europe to deliver much faster. They have to deliver.

In a statement, European Commission spokeswoman Nuyts Veerle strongly rejected the idea that the EU had been slow or inadequate in disbursing its aid. The overall commitment of “Team Europe” – comprising not only the EU, but also its member states and financial institutions such as the European Investment Bank – amounts to around 19 billion euros, Veerle said.

The European Commission also pledges to have disbursed 10.2 billion euros in emergency economic aid to Ukraine by the end of the year, excluding military aid, Veerle said. While the vast majority of aid takes the form of loans rather than grants, these loans are granted on terms that are very favorable to the borrowers.

Part of the challenge is that such decisions from EU capitals must be supported unanimously, creating the opportunity for roadblocks, while the US can approve aid without having to consult other nations.

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“The EU is hosting millions of Ukrainian refugees and caring for them on EU territory. All of this must be taken into account when considering the overall scope of support and assistance,” added a European official, speaking on condition of anonymity to candidly reflect the position of the EU. “Furthermore, the EU has made long-term commitments for the post-war reconstruction of Ukraine. For us, it’s not a race or a beauty contest. Aid to Ukraine is in our vital interest, and we are determined to do all we can to help defeat the aggressor and rebuild his country.

The European Union faces its own challenges against a backdrop of darkening global economic prospects. Europe faces a severe economic downturn and likely recession this winter as Russia chokes off the continent’s energy sources in retaliation for sanctions imposed during the war. Inflation in Europe continues unabated and energy prices have climbed higher there than in the United States.

But the economic situation in Ukraine is worse and the warnings have intensified in recent weeks despite the nation’s battlefield victories against Russia.

Ukraine’s tax revenue is now almost entirely spent on military operations, forcing the country’s government to print new currency, driving up inflation and lowering the value of its currency. Inflation is already above 30% and the country’s currency, the hryvnia, has lost about 70% of its value, according to Maryan Zablotsky, a member of Ukraine’s parliament who sits on its finance committee. Zelensky, speaking remotely at a World Bank meeting on Wednesday, said inflation-adjusted incomes among Ukrainians had fallen by more than a third.

“We understand that a lot of Western countries have their own issues and problems, but current aid is barely enough to feed people,” Zablotsky said in an interview.

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Kenneth Rogoff, Harvard economist and former chief economist of the International Monetary Fund, said he fears that inflation in Ukraine will continue to soar within six months to a year if additional assistance does not materialize. With its large budget deficit, Ukraine was forced to print money to cover its spending obligations, which lowered the value of the currency and drove up the costs of imports and other goods.

“They’re in a desperate, desperate situation that you can’t even imagine…In a sense, as they win the war, their economy loses,” Rogoff said. “Europeans should pay a lot more; I don’t care if they’re in a recession. Ukraine is in a war where it defends the border of Europe.

According to Jacob Kirkegaard, a senior fellow at the German Marshall Fund of the United States and the Peterson Institute, Yellen’s comments this week reflect long-standing frustration among US officials over European economic aid to Ukraine. The United States has pledged to provide $1.5 billion per month to cover the Ukrainian government next year. The European Commission has in recent weeks made a similar promise, but faces skepticism from international experts about its ability to deliver on that promise, given its failure to meet its targets so far.

“They have been unwilling to intervene to the extent that the United States clearly wants to,” Kirkegaard said Wednesday. “When you read Secretary Yellen’s comments today, it’s clearly palpable.”