Since it is my first appearance in the INTA committee in a new European Parliament, it's a pleasure to see many familiar faces but also a number of new faces, so I do look forward to continued good cooperation.
Moving to today's topic: Russia's war of aggression and attacks on Ukrainian infrastructure, including energy infrastructure, continue to have a significant impact on Ukraine's economy and public finances. Additional financial support is critical for the survival of Ukraine.
In June this year, G7 leaders took a commitment to provide $50 billion worth of Extraordinary Revenue Acceleration loans to Ukraine, to be serviced and repaid by extraordinary revenues stemming from the immobilisation of Russian sovereign assets.
This was followed by the European Council conclusions, also from June, reiterating this commitment and inviting the Commission, together with the High Representative and Council, to take this work forward.
In light of these urgent financial needs and to make the committed amount available to Ukraine under this G7 initiative, the Commission and High Representative adopted legislative proposals on 20 September to operationalise this G7 decision.
There are four legislative proposals in the package adopted. First, a Commission proposal to set up a Ukraine Loan Cooperation Mechanism and provide an EU macro-financial assistance loan to Ukraine.
I will explain these proposals in more detail, for which your involvement will be key as this proposal is to be adopted by both the European Parliament and the Council.
Second: the High Representative has made a proposal which would allocate 95% of the windfall profits to the EU budget, with 5% going to the European Peace Facility. This is to be decided by Council in qualified majority voting.
Third: the Commission and High Representative jointly adopted a proposal to direct all the windfall profits that go to the EU budget towards the new Ukraine Loan Cooperation Mechanism. Again, this decision to be decided by Council in QMV.
And finally, the High Representative has proposed a Council Decision amending the sanctions regime concerning immobilised assets, to change the renewal period of these sanctions from the current 6 months to every 3 years. This is to be decided in Council by unanimity.
Let me explain the first proposal in more detail. The Commission proposes to establish a Ukraine Loan Cooperation Mechanism which will be funded by the windfall profits accruing to the EU budget, and possibly additional contributions from Member States or G7 partners.
Ukraine will be able to request support from this Mechanism to repay the interest, principal and other costs of the G7 loansthose. The value of loans that can be supported from the Ukraine Loan Cooperation Mechanism is capped at €45 billion. So it is in line with the targeted total support of the G7 initiative: as I mentioned, $50 billion.
Once loans are considered eligible for support under the Ukraine Loan Cooperation Mechanism, Ukraine will be able to request support twice a year. The amounts in the Ukraine Loan Cooperation Mechanism will be allocated amongst the loans provided in proportion to the principal of each loan as a total sum of the loan's principals, which includes the EU but also other G7 partners.
This approach, to leverage windfall profits to provide loans to Ukraine, means that Ukraine has the financing it now needs to support itself, while also ensuring that the profits stemming from the immobilisation of the Russian assets are financing this support.
As the EU's contribution under this initiative, the Commission is also proposing an exceptional Macro-Financial Assistance loan. The proposed MFA loan will be broadly similar to previous MFAs.
The support will be linked to the fulfilment of political preconditions and specific conditions to be established under the Memorandum of Understanding with Ukraine. And like the previous MFA+, this MFA would be backed by the EU budget headroom, in line with the MFF regulation.
At the same time, this MFA will have some novelties. First: the loan is not expected to be paid back by Ukraine, but by windfall profits. Second: given the strong conditionality already embedded in the Ukraine Plan as part of the Ukraine Facility, the intention would be that the policy conditions are consistent with the Ukraine Facility.
Third: building on this link with the Ukraine Facility, the control systems established under the Ukraine Facility would also apply to the new MFA loan to protect the EU's financial interests.
The proposal provides for a loan of up to €35 billion, with an automatic correction mechanism based on the amounts that other G7 partners will provide. To explain this:
The original endeavour was to provide $50 billion of loans, and now each G7 partner is working to operationalise their own commitments. There are already clear commitments from Canada, the UK and Japan to come on board.
The US has indicated that a change of the sanctions regime is a precondition for their involvement on an equal par with the EU. In the absence of such a change, the US can still join the initiative, but with a much lower amount. We believe that the proposal of changing the sanctions regime would be sufficient to get the US on board, but this proposal requires unanimity in the Council.
While the Commission hopes that this will be achieved, it is not a certainty at this stage. So this is something that still requires some further work.
Time is of the essence for this authorisation, which we need this year, because the possibility of borrowing against the headroom expires at the end of this year. So that's why it is also time-sensitive to move forward with this proposal.
As I said, the proposal has an authorisation to lend up to €35 billion, but there is also an automatic correction mechanism, taking into account other G7 lenders' contributions. What this means is that any amount that G7 lenders would commit to provide over a total of €10 billion would reduce the exposure of the MFA by an equal amount.
Discussions will also continue at G7 level in the coming weeks.
The G7 Presidency is now aiming for a political commitment on participation of this ERA loans initiative around the end of October, which would allow all G7 lenders sufficient time to operationalise loans by end of this year. For this, from the EU's side, swift adoption of the legislative proposal will be of paramount importance. The Commission looks forward to working hand in hand with the European Parliament and the Council to achieve this.
Adopting the proposal by the end of October would allow for the time needed to complete the remaining processes required for the Commission to release the EU loan before the end of the year.
This includes the finalisation of the G7 negotiations; negotiation and signature of a Memorandum of Understanding and Loan Financing Agreement with Ukraine; possible ratification of these by the Ukrainian Parliament; verification that policy conditions underpinning the MFA loan are fulfilled; and the subsequent adoption of the Commission release decision.
We are now at a critical moment to demonstrate our and the G7 collective commitment to support Ukraine's current and future needs in the face of what is already protracted Russian aggression. This requires a coordinated international effort and it's important that the EU plays its full role in this.
