The financial strain on Ukraine's allies is becoming increasingly evident. Initially, it was the United States that faced funding challenges, leading to a six-month gap in military aid to Ukraine. This allowed Russia to severely damage 90% of Ukraine’s non-nuclear electricity generation capacity. Now, Germany has frozen additional military aid to Ukraine due to budget constraints, as reported by Frankfurter Allgemeine Zeitung (FAZ) on August 18.
The freeze, supported by Chancellor Olaf Scholz and ordered by Finance Minister Christian Lindner, limits new funding for Ukraine's military to previously announced aid packages. No new funds will be allocated in the coming years, despite the ongoing conflict in Ukraine.
Ukraine’s presidential office quickly responded on social media, denying any suspension of German financial aid. Some commentators have noted that the final decision lies with the Bundesrat, Germany’s parliament, which has not yet ruled on the matter. The parliament had previously approved additional funds last year, despite the government's draft budget, so there is still hope for a workaround.
Complicating the situation, a recent investigation revealed that a Ukrainian diving instructor was responsible for the destruction of the Nord Stream 1&2 gas pipelines, a major energy source for Germany. Although German prosecutors have issued a warrant for his arrest, he fled to Ukraine with alleged Polish assistance. Ukraine is concerned that growing "Ukraine fatigue" in the West may reduce the support it receives from its allies. Although the U.S. passed a new $61 billion aid package on April 20, it is widely seen as the last significant financial contribution from the U.S. to the war effort.
The European Union also approved a four-year €50 billion support package in February and is now Ukraine’s primary source of funds. Additionally, a $50 billion loan agreed upon by the G7 countries in July, to be serviced by interest payments from $300 billion in frozen Russian Central Bank reserves, was approved. However, as reported by IntelliNews, Ukraine is running low on manpower, funds, and equipment, and the loan money is not expected until autumn at the earliest.
Ukraine’s budget this year includes a record $43 billion deficit, but there is already a $12 billion shortfall that needs to be addressed. The government is considering spending cuts, tax increases, and possibly printing more money to cover the deficit. The outlook is bleak, with the Ministry of Finance forecasting $37 billion in international aid this year, mostly in the form of loans, decreasing to $19 billion by 2026.
Ukraine has technically defaulted on its Eurobonds, unable to begin repayments in August, and has had to restructure its debt, giving investors a 60% haircut but offering GDP warrants as compensation. Some of the world’s largest investors, including BlackRock, Amundi, and Amia Capital, will write off a significant portion of $23.4 billion by exchanging their bonds for new ones with maturities of up to 12 years.
Germany’s decision to freeze aid comes at a critical time for Ukraine, which is losing ground to advancing Russian forces but has also launched a bold counteroffensive in the Battle for Kursk. Ukraine urgently needs more funds and arms. In a letter obtained by FAZ, Finance Minister Lindner suggested that future aid to Ukraine should be financed through the $50 billion G7 package. However, the loan is still mired in disputes over distribution, and Germany has objected to further participation, pointing out that it has already contributed €37 billion to Ukraine’s war effort and is the largest contributor to the EU’s €50 billion package.
The freeze on new military aid has reportedly caused significant tensions within the German government. Defense Minister Boris Pistorius, Foreign Minister Annalena Baerbock, and Vice Chancellor and Minister for Economic Affairs Robert Habeck strongly opposed the decision. According to FAZ, there was a major dispute within the government following the announcement.
The report also noted that funds for military aid in 2024 have already been fully allocated, with the planned €4 billion for 2025 already overbooked. The federal government denied the FAZ report, stating that aid to Ukraine was capped at €4 billion in the budget because additional funds would come from another budget. There was no comment on the current delivery of weapons, which is typically only announced once they have arrived in Ukraine.
Looking ahead, the financial outlook for Ukraine is grim, with only €3 billion earmarked for 2026 and just €500 million for both 2027 and 2028. Without new funding, future military aid to Ukraine will be severely limited, making the $50 billion G7 loan a crucial source of support.
Germany’s budget constraints stem from a November 15 ruling by the Federal Constitutional Court, which declared the second supplementary budget unconstitutional. The federal government had planned to use €60 billion in structural EU funds for the green transition, but the court ruled that the funds could not be reallocated under Germany’s debt-brake rules, leaving a significant hole in budget plans.
Both the federal government and the 16 federal states are required to balance their budgets, making new loans difficult. No other G7 country has such strict borrowing limits, which are enshrined in the German constitution. The debt break became legally binding for the federal government in 2016 and for the states in 2020. The federal government’s only flexibility is borrowing up to 0.35% of GDP, or around €13 billion in additional debt.
The debt brake can only be suspended for natural disasters or emergencies beyond governmental control that severely harm the state’s financial capacity, a category that does not include the war in Ukraine.
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