Yellen also raised the issue at a private meeting at the International Monetary Fund this week with European Commission Executive Vice-President Valdis Dombrovskis and EU Economic Commissioner Paolo Gentiloni, according to a person familiar with the matter, who spoke 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.
New World Bank forecasts last week suggested Ukraine’s economy will contract by 35 percent this year, and the country’s finance 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 favour, the country’s exports have plummeted, tax revenues have collapsed, millions have fled and Russian attacks have pulverized critical infrastructure, including the power grid.
International aid has proved insufficient to fill the gap. Zelenskyy said Wednesday that Ukraine needs up to $38 billion in emergency economic aid from the West for next year’s budget alone. That figure excludes the additional $350 billion estimated by the World Bank for Ukraine long-term reconstruction after the end of the war. The United States has disbursed $8.5 billion in economic aid and will be disbursing another $4.5 billion by the end of the year, while US officials say the European Union has pledged €11 billion but only disbursed about €3 billion in loans.
“We call on our partners and allies to join us in swiftly discharging their existing commitments to Ukraine and doing more – both to help Ukraine continue essential government services and to help Ukraine recover.” and begin recovery,” Yellen said Tuesday.
On Wednesday, Yellen again stressed the need for quick disbursements of direct cash payments – instead of loans that have to be repaid – to support the country’s economy. Yellen’s comments were a thinly veiled reference to the EU, which has provided almost all of its aid in the form of loans.
“Donors need to keep stepping up,” Yellen said. “The scope, predictability and grant component of payouts need to be improved.”
Careful not to anger their European allies with harsh public condemnations, both Ukrainian and US officials have nonetheless expressed their feeling that the commission is moving too slowly.
“I know they are very frustrated,” said a former senior Treasury Department official, who spoke on condition of anonymity to reflect private conversations with Treasury Department leadership. “The US officials want Europe to deliver a lot faster… They want Europe to deliver a lot faster. You have to deliver.”
In a statement, European Commission spokeswoman Nuyts Veerle firmly rejected the idea the EU had been too slow or insufficient in disbursing the aid. The total commitment of “Team Europe” – which includes 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 pledged to have disbursed €10.2 billion in emergency economic aid to Ukraine by the end of the year, excluding military aid, Veerle said. While the vast majority of assistance is in the form of loans rather than grants, these loans are provided to borrowers on extremely favorable terms.
That’s part of the challenge Such decisions by EU capitals must be backed unanimously, creating the possibility for roadblocks while the United States can approve aid without having to consult other nations.
“The EU has taken in millions of refugees from Ukraine and cared for them on EU territory. All of this must be taken into account when discussing the overall level of support and assistance,” added a European official, speaking on condition of anonymity to honestly reflect the EU’s position. “The EU has also made long-term commitments to Ukraine’s post-war reconstruction. For us, this is not a race or a beauty pageant. Helping Ukraine is in our vital interests and we are determined to do whatever we can to defeat the aggressor and rebuild his country.”
The European Union is grappling with its own challenges amid a deteriorating global economic outlook. Europe faces a severe economic slowdown and a likely recession this winter as Russia chokes off the continent’s energy sources in retaliation for sanctions imposed over the war. Inflation in Europe has continued unabated and energy prices have risen more than in the United States.
But the economic situation in Ukraine is worsening and the warnings have accelerated in recent weeks despite the nation’s battlefield victories over Russia.
Ukraine’s tax revenues are now being used almost exclusively for military operations, forcing the country’s government to print new money — pushing up inflation and depressing the value of its currency. Inflation is already over 30 percent and the country’s currency, the hryvnia, is down about 70 percent, according to Maryan Zablotsky, a member of Ukraine’s parliament who sits on the finance committee. Zelenskyy remotely told a World Bank meeting on Wednesday that Ukrainians’ inflation-adjusted incomes fell by more than a third.
“We understand that many western countries have their own problems and problems, but 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 inflation in Ukraine could continue to skyrocket within six months to a year if no additional help is provided. With its large budget deficit, Ukraine has been forced to print money to meet its spending commitments – lowering the value of the currency and driving up the cost of imports and other commodities.
“They’re in a desperate, desperate situation that you can’t even imagine… As they’re winning the war, their economy is sort of losing,” Rogoff said. “Europeans should pay a lot more; I don’t care if they’re in a recession. Ukraine is in a war defending the borders of Europe.”
According to Jacob Kirkegaard, senior fellow at the German Marshall Fund of the United States and the Peterson Institute, Yellen’s comments this week reflect a spotlight on US officials’ long-growing frustration with European economic aid to Ukraine. The United States has pledged to provide the Ukrainian government with $1.5 billion a month over the next year. The European Commission has made a similar promise in recent weeks, but has faced skepticism from international experts about its ability to deliver on that promise as it is unable to meet its previous targets.
“They weren’t ready to step up in the scale that the US clearly wants,” Kirkegaard said on Wednesday. “If you read Secretary of State Yellen’s comments today, you can clearly feel that.”
