Ukraine faces a massive financial hole of 70 billion euros in 2026

What the EU Commission and Ukraine announced last Thursday sounded reassuring. “Through coordinated joint efforts, today we found ways to meet Ukraine’s budget and defense needs for 2026,” they said in a joint statement. At the end of August, Ukrainian President Volodymyr Zelenskyj complained about a budget gap of $27 billion (24 billion euros) this year. However, the fact that this has now disappeared was only the good news. The other bad news is that next year there will be a hole that will be even bigger.

According to F.A.Z. information, it could reach around 70 billion euros. Of this, around 40 billion euros go to defense against Russia and 30 billion euros go to the country's regular budget. Ukrainian Finance Minister Serhiy Marchenko said at a discussion in Brussels on Monday last week that his country was missing $32.6 billion (29 billion euros) in its regular budget and $45 billion (40 billion euros) short in defense spending. After extensive consultations on both sides, the EU Commission does not fundamentally doubt this information, even if the detailed examination is still ongoing.

It has already been taken into account that Ukraine will receive the second half of the EU loan approved at the end of 2025 next year, i.e. 45 billion euros, of which 30 billion are for the military and 15 billion for the general budget. The 70 billion euros come on top of that. For the European Union, this means that if, as before, it shoulders around two thirds of Kiev's total additional financial needs, it will have to raise a further 45 billion euros on top of the agreed loan, just for the next year.

From Monday to Thursday last week, a Ukrainian delegation led by Finance Minister Serhiy Marchenko and Defense Minister Yevheniy Khmara was in Brussels to discuss the budget situation with Economic Commissioner Valdis Dombrovskis, Defense Commissioner Andrius Kubilius and top Commission officials. These discussions showed that Ukraine will be able to meet its financial obligations this year.

As the Commission explained on Friday, Kiev is still entitled to 16.6 billion euros in military aid and a further 17.1 billion euros in budget support, including 4.4 billion euros from an earlier aid program. “We have concluded that the measures already in preparation will effectively meet the needs in Ukraine this year,” a spokesman said. The commission referred questions about why Kiev had previously identified a hole to the Ukrainian government.

Internally it was heard that there was confusion about when the money for the current year could actually be paid out. From the Commission's perspective, timely disbursement of budget support is possible if Kiev has passed the agreed reform laws in parliament. In this respect, from Brussels’ perspective, the ball is now in Kyiv’s court. It is said that without these reforms, the Ukrainian government will not need to ask for help next year.

Regarding the financial requirements for 2027, the Commission spokesman said on Friday only that they had begun “to determine the additional budget and defense needs for 2027”. In this context, it is important that other partners also fulfill their commitments in view of the “significant challenges” facing Ukraine. From now on, both sides would meet once a month to better understand “changing financing needs”.

The apparently huge hole that lies behind these formulations is partly due to collapsing income. The country has no longer been able to export grain across the Black Sea since August. In addition, the Russian attacks, which doubled in September compared to previous months, are also affecting Ukrainian industry. Kyiv also needs far more money for its defense. The EU loan of 90 billion euros was based on an IMF calculation that assumed that the fighting would end this year. However, no one expects that anymore.

According to F.A.Z. information, the Commission wants to give the heads of state and government an initial overview of the additional money needed when they meet for the European Council in ten days. Then it should also be about financial planning for the years 2028 to 2034. A new proposal from the Irish Council Presidency is expected at the end of this week. Ultimately, we hear internally, this debate, which involves a sum of up to two trillion euros, must be linked to the one about the financing needs for Kiev.

Last year, states struggled for weeks over whether to use the Russian central bank's assets, which were frozen in the EU, to finance Ukraine. Germany had campaigned for this, but Belgium, where around 200 billion euros are held by the asset manager Euroclear, stood in the way. In December, a group of states led by France and Italy pushed through with a proposal to take out 90 billion euros as a loan, which would be secured from the scope in the EU budget and therefore would not burden the national budget balance of the member states. Kiev should only pay back the money if Moscow makes reparations for war damage in a peace treaty - which hardly anyone believes is realistic.

There would probably be just enough scope in the EU budget for 2027 to take on a further 45 billion euros in debt. The EU Commission is reluctant to let its hand be seen, but there are some signals in this direction. At the end of August, four EU states tried to revive the debate about the use of Russian assets - and justified this with the budget gap for 2026 mentioned by Zelensky.

However, they found little support for this at a meeting of EU foreign ministers in Ireland. In fact, the Belgian position has become even more hardened since a Moscow court ordered Euroclear to pay €200 billion in damages in May. Experts say it makes no sense to hit your head against the Belgian wall a second time.