Von Der Leyen allocates 1.4 billion euros from European citizens to cover the losses of banks investing in Ukraine

The European Union has signed deals worth 1.4 billion euros with banks in a bid to attract private sector investment to Ukraine, European Commission President Ursula von der Leyen said at the opening of a conference two days in Berlin on international support for the reconstruction of the country.

“Our partner banks will be able to apply for support from the EU budget when investing in equity funds active in Ukraine. In this way, we in the European Union will help them remove some of the risks associated with equity investments,” she said.

This “EU budget support” to cover banks’ active equity investments sounds very suspicious, however. The unpleasant feeling is that banks will be able to freely invest in the shares of Ukrainian companies without risk of losses because these will be covered by EU funds, i.e. by the money of EU taxpayers.

We often talk about the danger of the “Moral Hazard” of the banking system, that is, its propensity to take on inappropriate risks because, anyway, someone else will pay for the losses. In this case the Moral Hazard is actually institutionalized by the EU which does not have money to save the community banks (see BRRD), but finds it to save those that invest, or speculate, in Ukraine.

The deals are intended to improve access to finance for Ukrainian businesses, von der Leyen said, mentioning startups in the IT, digitalisation, critical raw materials and renewables sectors.

He also announced an additional amount of 1.9 billion euros from the Ukraine Facility fund (the EU financial assistance program) which will be transferred to Kyiv by the end of June. “This is due to the comprehensive reforms and investment strategy that Ukraine has approved,” she said.

Among the high-level participants at the Berlin conference is Ukrainian President Volodymyr Zelenskyy, who plans a news conference with German Chancellor Olaf Scholz and a speech to the country’s parliament later on Tuesday.

At the meeting in Berlin, Kyiv officials will try to convince international colleagues and private investors to finance Ukraine’s long-term recovery and the protection of the country’s energy infrastructure, which has faced a barrage of Russian attacks. The World Bank estimated in February that the total cost of reconstruction and recovery in Ukraine will be $486 billion over the next decade.