EU fiscal capacity and the funding of the war in Ukraine

As the European Union (EU) was re-emerging from the Covid-19 pandemic, it faced another major shock - Russia’s illegal aggression of Ukraine. In the face of this geopolitical challenge EU institutions and Member States rallied to support Ukraine. Nevertheless, the war in Ukraine also exposed the limited fiscal capacity of the EU. As a result, EU institutions and Member States had to come up with creative ways to financially back Ukraine’s military and civilian efforts. This chapter examines several key tools deployed by the EU to fund Ukraine in its war against Russia, namely the European Peace Facility (EPF), the Macro-Financial Assistance (MFA+) Instrument, and now the Ukraine Facility (UF). The chapter details the legal features of these tools, evaluates their intergovernmental vs supranational nature, and reflects on their significance for the consolidation of an EU fiscal capacity. As the chapter argues, the war in Ukraine quickly prompted the EU to replicate some of the novelties it used to respond to the Covid-19 pandemic, namely the use of common borrowing and spending. Nevertheless, fiscal and governance weaknesses connected to the EU constitutional structure still limit the ability of the EU to mobilize resources and leverage power on the international stage.