US grows frustrated over Europe's delayed economic aid to Ukraine
The Washington Post October 15, 2022
WASHINGTON - Tensions are rising between the United States and its Western allies over Ukraine's deteriorating economy, as American officials increasingly prod the European Union to ramp up financial assistance to the war-torn country.
On several occasions this week during meetings of global financial leaders in Washington, Treasury Secretary Janet L. Yellen called on her international counterparts to accelerate both the speed and amount of money going to Ukraine. Yellen was joined in that push by Ukraine President Volodymyr Zelenskyy and Ukrainian Prime Minister Denys Shmyhal, who virtually addressed a World Bank meeting of top financial officials on Wednesday.
Yellen also raised the issue at a private meeting this week at the International Monetary Fund with European Commission Executive Vice President Valdis Dombrovskis and European Economy Commissioner Paolo Gentiloni, according to a person familiar with the matter who spoke on the condition of anonymity to describe private meetings. She raised the issue again at a subsequent meeting of all E.U. finance ministers, the person said.
New projections from the World Bank last week suggest that Ukraine's economy will contract by 35 percent this year, and the country's financial officials say inflation could hit 40 percent early next year - close to economists' definition of "hyperinflation." Even as the situation on the battlefield has turned in Ukraine's favor, the nation's exports have plummeted, tax revenue has crumbled, millions of people have fled and Russian attacks have pulverized critical infrastructure, including the electrical grid.
International assistance has not proved enough to make up the gap. Zelenskyy on Wednesday said Ukraine needs as much as $38 billion in emergency economic help from the West for next year's budget alone. That figure excludes the additional $350 billion the World Bank has estimated will be necessary for Ukraine's long-term reconstruction once the war ends. 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 U.S. officials say the European Union has pledged 11 billion euros but only disbursed about 3 billion in loans.
"We are calling on our partners and allies to join us by swiftly disbursing their existing commitments to Ukraine and by stepping up in doing more - 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 rapid disbursement of direct cash payments - rather than loans that have to be repaid - to assist the country's economy. Yellen's comments were a thinly veiled reference to the E.U., which has almost entirely given its aid in loans.
"Donors need to keep stepping up," Yellen said. "The scale, predictability and grant component of disbursements must improve."
Both Ukrainian and U.S. officials are careful not to antagonize their European allies with harsh public condemnations but have still conveyed their sense that the commission is moving too slowly.
"I know they're very frustrated," one former senior Treasury official said, speaking on the condition of anonymity to reflect private conversations with Treasury leadership. "The U.S. officials want to see Europe deliver far more quickly . . . They want Europe to deliver far more expeditiously. They need to deliver."
In a statement, European Commission spokeswoman Nuyts Veerle strongly rejected the idea that the E.U. had been slow or inadequate in its disbursement of aid. The overall commitment of "Team Europe" - including not just the E.U., but also its member states and financial institutions such as the European Investment Bank - amounts to roughly 19 billion euros, Veerle said.
The European Commission is also pledging to have disbursed 10.2 billion euros in emergency economic support for Ukraine by the end of the year, excluding military aid, Veerle said. While the vast majority of the assistance is in the form of loans rather than grants, those loans are made on highly favorable terms to the borrowers.
Part of the challenge is that such decisions by E.U. capitals have to be supported unanimously, creating the opportunity for roadblocks, whereas the United States can approve aid without having to consult other nations.
"The E.U. has been welcoming millions of refugees from Ukraine and has been taking care of them on E.U. territory. All this needs to be taken into account when discussing the overall extent of the support and assistance," a European official added, speaking on the condition of anonymity to frankly reflect the E.U.'s position. "Plus, the E.U. made long-term commitments for the postwar reconstruction of Ukraine. For us, this is not a race or a beauty contest. Assistance to Ukraine is in our vital interest, and we are determined to do as much as we can to help to defeat the aggressor and rebuild their country."
The European Union is contending with its own set of challenges amid a darkening global economic outlook. Europe faces a severe economic slowdown and likely recession this winter as Russia chokes off the continent's sources of energy in retaliation for sanctions imposed over the war. Inflation in Europe is continuing unabated, and energy prices have soared higher there than in the United States.
But the economic situation in Ukraine is worse, and warnings have accelerated in recent weeks despite the nation's victories on the battlefield over Russia.
Ukraine's tax revenue is now almost entirely devoted to military operations, forcing the country's government to print new money - driving up inflation and forcing down the value of its currency. Inflation is already above 30 percent, and the country's currency, the hryvnia, has fallen in value by roughly 70 percent, according to Maryan Zablotsky, a member of Ukraine's parliament who sits on its finance committee. Zelenskyy, speaking remotely to a World Bank meeting on Wednesday, said inflation-adjusted incomes among Ukrainians had fallen by more than one-third.
"We understand a lot of Western countries have their own issues and problems, but the current aid is barely enough to feed people," Zablotsky said in an interview.
Kenneth Rogoff, a Harvard economist and former chief economist at the International Monetary Fund, said he is concerned that Ukraine's inflation could continue to skyrocket within six months to a year if additional help does not materialize. With its large budget deficit, Ukraine has been forced to print money to cover its spending obligations - lowering the value of the currency and pushing up the costs of imports and other goods.
"They're in a desperate, desperate situation you cannot even imagine . . . In a sense, while they're winning the war, their economy is losing," Rogoff said. "The Europeans should be paying way more; I don't care if they're in a recession. Ukraine is in a war where it is defending the border of Europe."
Yellen's comments this week reflect how U.S. officials' long-building frustration over European economic aid to Ukraine is now coming into view, according to Jacob Kirkegaard, a senior fellow at the German Marshall Fund of the United States and at the Peterson Institute. The United States has committed to providing $1.5 billion per month to cover Ukraine's government next year. The European Commission in recent weeks made a similar pledge but faces skepticism from international experts over its ability to make good on that pledge, given its inability to meet its goals thus far.
"They have not been willing to step up to the plate to the extent that clearly the U.S. wants," Kirkegaard said on Wednesday. "When you read Secretary Yellen's comments today, it's clearly palpable."