German opposition to reforming EU fund risks delaying arms to Ukraine

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German opposition to the proposed overhaul of an EU military support fund risks delaying arms deliveries to Ukraine, officials have warned, amid intense pressure on Kyiv’s allies to respond to a step up in Russian attacks.

The European Peace Facility is a €12bn fund set up outside the shared EU budget and is based on contributions from member states depending on the size of their economies. It has been depleted after reimbursing €5.6bn to EU capitals for arms they have shipped to Ukraine in the nearly two years since Russia’s full-scale invasion.

The EPF needs additional funding so that capitals can be partly reimbursed for their weapons shipments, but a proposed €5bn injection is being held up as countries argue about how to reform the fund to better fit Ukraine’s needs and help Europe’s arms industry meet them.

“Brussels says: ‘pay first, get refunded later’,” said one EU official involved in the negotiations. But Germany and other countries favouring a pivot away from the reimbursement model “are arguing they shouldn’t need to”.

EU leaders last week overcame Hungary’s objections and agreed to pay €50bn over four years to keep Ukraine’s economy and budget afloat, but the issue of military funding was not resolved. The US, which has been the largest donor of weapons to Ukraine since 2022, has yet to secure congressional approval for fresh military and economic aid to Kyiv.

The delays come as officials in Kyiv become increasingly concerned about the gap between Russia’s munition replacement rate and Ukraine’s. Ukrainian troops have started rationing their arms in what Nato’s secretary-general has called a “battle for ammunition”. Brussels last week admitted it would fail to meet a pledge to send 1mn artillery shells to Kyiv by March.

Berlin is under intense fiscal constraints after a constitutional court ruling against its budget arrangements. It is demanding that the value of the weapons it supplies bilaterally to Kyiv should count against its share of the fund. Smaller countries say that would drastically shrink the fund’s size.

“They don’t want to say yes to the money or no without being certain that the [terms] are in line with what is acceptable for them,” said a senior EU official involved in discussions with leaders last week, referring to Germany’s stance.

At the summit, German Chancellor Olaf Scholz insisted that agreement on the proposed EPF reform should include “suggestions” made by member states, according to people briefed on the discussions.

“We did not even talk about the issue of the European Peace Facility,” Scholz said after the summit. “That was also not the intention to talk about this in more detail.” Germany’s solution, he added, would “take into account the national contributions that are delivered . . . to Ukraine”.

Separately from the dispute over the future format of the EPF, Budapest has been blocking a €500mn tranche of reimbursements to EU countries for the past nine months. Its move comes as a protest after Kyiv put Hungarian bank OTP on a list of companies it claims are helping Russia. The bank has since been delisted, but Hungary is demanding further reassurances such a move will not be repeated.

Despite that hold-up, Hungarian leader Viktor Orbán has not signalled that he will block the EPF top-up or its reform, as long as his country’s contribution to the fund is used only for non-lethal aid, according to EU diplomats. The fund allows countries, including Austria and Ireland, to pay for equipment other than weapons.

The EPF reform as circulated ahead of the summit aims to achieve “a more structured, efficient and pragmatic” way of funding weapons for Ukraine, according to a document seen by the Financial Times.

Large contributors to the fund claim that smaller countries such as the Baltic states secured large reimbursements from the EPF for sending outdated Soviet-era weapons to Ukraine, and used the money to upgrade their own kit.

Those countries have argued that Ukrainian forces needed Soviet-era equipment at the beginning of the war as they already knew how to use those weapons.

A second sticking point is the speed with which the EPF will shift from reimbursing countries to funding arms contracts. Countries with large weapon industries, such as Germany and France, are pushing for a speedy change and “will be the biggest beneficiary”, said the EU official. “The others are very much aware of this.”

The current proposal says “reimbursement of bilateral deliveries will be gradually phased out after a transition period.” One official said the majority view was for the existing model to apply in 2024, at least, and for financing of joint production to scale up next year.

Officials involved in the negotiations say that they are working to find a compromise solution by the end of February.

Josep Borrell, the EU’s chief diplomat who oversees the EPF, last week said that he would “urge [leaders] to reach an agreement as soon as possible, because there is no more time”.

“In the next month we have to increase our military support to Ukraine . . . I don’t think we have the sense of urgency when we deal with that.”

Additional reporting by Sam Jones in Berlin