EU borrows money to help Ukraine: why rising rates make new support packages more expensive
The rising cost of European debt has quite practical significance for Ukraine. One of the largest support packages for Kyiv is financed by the EU not from a pre-accumulated fund: the European Commission itself borrows money from investors on the capital market.
This refers to the Ukraine Support Loan credit of up to €90 billion for 2026–2027. Approximately €60 billion is earmarked for defense needs, and another €30 billion for budgetary and economic support.
For now, the already agreed package remains in force. But the more expensive the European Union's own borrowing becomes, the more funds from the European budget are required to service such debt. This factor becomes especially important when discussing financing for Ukraine after the already approved €90 billion.
Where the EU gets €90 billion for Ukraine
The European Union does not transfer this money from a separate fund where the entire necessary amount was lying in advance.
The European Commission, on behalf of the EU, issues bonds and other debt securities. They are bought by banks, investment and pension funds, and other investors. The funds received are then distributed among programs that the EU finances through borrowing, including support for Ukraine.
In the second half of 2026, the European Commission plans to raise about €80 billion through long-term EU bonds, and up to €180 billion over the entire year. These borrowings are used not only for Ukraine, but also for other European programs.
The loan to Ukraine itself is backed by the EU budget. The mechanism operates within the framework of enhanced cooperation of 24 member states. The Czech Republic, Hungary, and Slovakia do not participate in it, so expenses arising from this mechanism should not increase their financial obligations.
Ukraine does not pay current interest on this loan
There is an important feature here.
Ukraine will have to repay the principal after receiving reparations due to it from Russia. At the same time, the costs of servicing European borrowings — the cost of raising funds, issuing bonds, and liquidity management — are covered by the EU budget.
This means that an increase in market rates does not automatically turn into additional interest on the loan that Kyiv must pay immediately.
Additional burden arises primarily for the budget of the European Union itself.
The European Commission estimated the cost of servicing the Ukraine Support Loan in 2027 at approximately €1.15 billion. A special budgetary mechanism is provided to cover these costs.
That is, the cost of raising capital is already a separate expenditure item of the European budget, not just a technical detail of bond issuance.
The EU is already borrowing at noticeably higher rates
Latest data show why this issue is becoming increasingly prominent.
The European Central Bank (ECB) noted the rise in long-term risk-free rates to multi-year highs. By September 9, the ten-year risk-free rate in the euro area rose by about 0.37 percentage points and reached 3.2%.
At an auction of European Union bonds on September 28, the average yield of an issue maturing in 2029 was 3.61%, an issue maturing in 2035 — about 4%, and longer-term securities maturing in 2048 — 4.55%.
This does not mean that the money was issued to Ukraine at exactly these rates. The European Commission uses a unified borrowing system and then distributes the raised funds among various programs.
But these figures show the real cost at which the EU is currently able to raise funds on the market.
The higher such a cost, the more the European budget has to allocate to interest for the same volume of borrowing.
Two-thirds of the €90 billion is linked to defense
For Ukraine, the program's significance is especially great because of its structure.
About €60 billion out of €90 billion are earmarked for supporting defense capabilities and the defense industry. Around €30 billion are intended for state functioning and economic support.
For 2026, the EU Council made up to €45 billion available: €28.3 billion for the defense track and €16.7 billion through budget support mechanisms.
According to the latest data from the EU Council, €14.9 billion has already been disbursed under the Ukraine Support Loan. Of that, €3.2 billion went to macro-financial assistance and €11.7 billion to defense procurement.
Funds from the defense component are directed, in particular, to drones, missiles, air defense systems, ammunition, and other defense capabilities.
Therefore, European financing in this case is not just money flowing directly into the Ukrainian budget. A significant part of the package is transformed into orders for defense enterprises of Ukraine, EU countries, and other partners admitted to the mechanism.
Rising rates do not mean Ukraine will automatically get less
It is important not to oversimplify the connection between the cost of European debt and assistance to Ukraine.
The approved package of €90 billion already exists, the legislative framework has been created, and disbursements have begun. A rise in bond yields by itself does not reduce the agreed amount.
For Ukraine, it also does not mean the sudden appearance of an extra interest bill: the cost of servicing the loan is borne by the European budget.
But for the EU, expensive borrowing means a higher price for financing the program.
That is why the most significant question arises not around the already agreed €90 billion, but around how much the creation of the next major programs will cost if external support is needed by Ukraine after 2027.
Any budget has competing expenses. Additional debt servicing costs are considered alongside financing for European defense, infrastructure, social programs, and other areas.
This does not determine the political decision to support Ukraine, but it changes its financial cost.
In 2027, Ukraine still lacks $32.6 billion in confirmed financing
The scale of the future challenge is already visible from the calculations of the Ukrainian Ministry of Finance.
In 2027, Ukraine will need about $52.6 billion in external financing.
For about $20 billion, expected sources already exist. Another $32.6 billion is not yet supported by confirmed financing.
This estimate includes funds that are supposed to come from already agreed international programs, including the remaining part of the European Union loan.
Therefore, the question is not only whether the EU will fulfill existing obligations. Kyiv and partners need to identify sources for the part of 2027 needs that remains uncovered, and then address financing for subsequent years.
Why frozen Russian assets come up again in this context
Against this background, the debate over frozen Russian state assets becomes clearer.
Ukrainian Finance Minister Serhiy Marchenko stated again in September that such assets should become a source of covering Ukrainian financial needs.
The Ukraine Support Loan itself already has a direct link to future Russian reparations: according to the mechanism's terms, Ukraine must repay the principal after receiving reparations from Russia.
The European Union also reserves the right to use frozen Russian assets to repay the loan in compliance with European and international law.
However, the legal mechanisms for using the assets themselves remain a subject of separate discussion and differ from the already operating schemes for using the revenue they generate.
The economic logic is becoming increasingly apparent. The larger the portion of future expenses that can be covered by Russian funds or related revenues, the less new resources will need to be raised through budgets and debt markets of European countries and institutions.
The main risk begins after the already agreed package
The current rise in rates does not call into question the existence of the €90 billion program and does not mean an automatic reduction in arms supplies or budget assistance.
But it changes the cost of European support.
The EU is effectively turning into a major borrower, raising tens of billions of euros on the market and then using them to finance Ukraine and other programs. The higher the yield on European bonds, the more expensive it is to service this mechanism.
That is why interest rates in Europe now matter far beyond mortgages, bank loans, and investment portfolios.
For Ukraine, the main question lies in the next stages: the country will need tens of billions of dollars in external financing in 2027 and, likely, significant external resources beyond that. The price at which allies themselves are able to borrow these funds becomes one of the factors in the cost of future decisions.
Based on materials from: Council of the European Union, European Commission, European Commission — funding program, results of the EU bond auction, Ministry of Finance of Ukraine, European Central Bank.
