The European Union's €90 billion loan package for Ukraine is expected to begin disbursement in mid-June, but significant questions remain about how the funds will be allocated. While Ukrainian President Volodymyr Zelenskyy has indicated that roughly €60 billion will go toward defense and the remainder to support the national budget, the precise spending plan has been closely guarded by Kyiv.
The loan, structured as a macro-financial assistance package backed by frozen Russian assets, is designed to provide Ukraine with long-term financial stability as the war with Russia enters its fifth year. However, the lack of transparency has sparked debate among EU member states about the conditions attached to the money.
Defense Spending Priorities
Zelenskyy stated in April that the defense allocation would be used for arms production and procurement of weapons, with a preference for domestic manufacturing where possible. If Ukrainian production cannot meet demand, equipment will be sourced from partner countries. The first tranche of €5.9 billion, approved by the European Commission, is expected to be disbursed later this month and will likely focus on purchasing Ukrainian-made drones.
Oscar Luigi Guccione from the German Marshall Fund estimated that this initial disbursement could cover approximately 3 million drones at an average cost of €2,000 each. “Ukraine would like to spend the most of this money inside Ukraine,” he said.
However, one EU source noted that the March 12 order for drones included exemptions for components produced outside the EU and Ukraine, likely referring to Chinese-made microchips, which are also found in Russian Shahed drones. The European Commission confirmed that a derogation request was granted but declined to provide details due to security concerns.
Spending Rules and European Preferences
The EU has established a strict three-tiered framework for how defense funds can be used. First, all purchases must be made in Ukraine, the EU, or the European Economic Area (EEA/EFTA). Second, Ukraine can buy from 12 countries that have signed security partnerships with the EU, including the United Kingdom and Canada. Third, if these options are exhausted and a genuine justification exists, Ukraine can procure from other nations.
European Commission spokesperson Balazs Ujvari confirmed that the expectation is for funds to be spent on European products wherever possible. “You buy European, unless the purchase fits into one of the agreed exemptions, such as lack of product in the EU or long delivery time,” one EU diplomatic source explained. Another source added that in emergencies where no European equivalent exists, Ukraine can turn to other suppliers, provided the need is urgent and the materials arrive quickly.
This framework reflects a compromise between member states with differing views. France, according to Luigi Scazzieri from the EU Institute for Security Studies, was among the loudest critics, arguing that European money should be spent on European capabilities to scale up production. In contrast, Sweden, the Netherlands, Poland, and to some extent Germany, pushed for maximum flexibility. “There's always a compromise between these different positions,” Scazzieri said.
Boosting Europe's Defense Industry
The loan also serves as a mechanism to stimulate Europe's defense industry, which has suffered from years of underinvestment and fragmentation. European Commissioner for Defence Andrius Kubilius has repeatedly called for a shift toward producing “good enough” weapons rather than “haute couture” systems—meaning cheaper, scalable arms that can be delivered quickly, rather than perfecting systems over years.
This approach is particularly relevant given the gap in production capacity between Europe and Ukraine, especially in unmanned aerial vehicles. European intelligence agencies have warned that Russia could attack an EU member state by the end of the decade, adding urgency to the need for a more agile defense industry.
A second envelope of funding, expected to focus on ammunition, missiles, and air defense, is still being finalized. Whether these purchases will remain within Europe remains uncertain. A senior EU official noted that while both sides desire European procurement, the continent's defense industry may not yet be able to meet all of Ukraine's needs.
As the war continues, the loan represents a critical lifeline for Ukraine, but its implementation will test the EU's ability to balance strategic autonomy with the practical demands of a conflict that shows no signs of abating. For more on Ukraine's defense efforts, see our coverage of Ukraine's drone offensive and the EU's diplomatic challenges.
