EU Agreement on €6.6 Billion in European Peace Facility (EPF) Aid for Ukraine: Analysis and Implications

Executive Summary

Overcoming Hungary's three-and-a-half-year veto, the EU has agreed to release €6.6 billion from the European Peace Facility (EPF) for military aid to Ukraine. Hungary's shift in stance is not a renunciation of its principles, but rather a transactional compromise linked to bilateral issues, such as the reduction of its SAFE defense loan request and ongoing consultations regarding the Hungarian minority in Zakarpattia. Because the allocation of the €4.7 billion reimbursement portion among member states and the actual transfer ratio remain undecided, this agreement represents a threshold crossed to resume aid rather than its completion. While the United States seeks an early end to the war by simultaneously pressuring both Zelenskyy and Putin, Europe is opting to strengthen Ukraine's bargaining power, highlighting a clear transatlantic strategic gap. This case, where a single member state's veto could paralyze collective security financing, offers institutional implications for South Korea as it considers ROK-US-Japan cooperation and NATO-IP4 alignment, while the actual flow of funds directly affects the European market entry strategy of the South Korean defense industry.

I. Issue Analysis

EU Unlocks €6.6 Billion in European Peace Facility (EPF) Military Aid for Ukraine

1. Background and Developments

The European Peace Facility (EPF) is a fund that reimburses EU member states for the weapons they provide to Ukraine [4]. It is financed through direct contributions from EU member states [1]. Although originally established for conflict prevention and non-lethal support, its nature shifted following Russia's full-scale invasion of Ukraine to serve as a mechanism for reimbursing member states' military assistance expenditures [1].

The disbursement of this fund had been blocked for about three and a half years since the spring of 2023 due to Hungary's veto [4]. EU security and defense policy operates under an intergovernmental framework that requires unanimity. The Orbán government, maintaining its opposition to military aid for Ukraine, has utilized this structure to continuously block EPF reimbursements [4][7]. Lithuania's national broadcaster LRT also reported that Hungary had long refused to authorize payouts from the fund, citing its opposition to military aid for Ukraine [7].

Hungary's shift in stance is interpreted as the result of a political compromise tied to its own interests. Around the same time, Hungary reduced its application for the EU's SAFE defense loan scheme from the initial €16 billion to €5.4 billion [10]. This means that Hungary, along with Italy, remains one of the two countries that have yet to receive final approval from the European Commission [10]. The Hungarian Ministry of Foreign Affairs announced on Facebook that Deputy State Secretary Anita Orbán met with her Ukrainian counterpart several times during the high-level week of the UN General Assembly and 'resolved the misunderstandings of the past few days' [12]. The ministry added that consultations are ongoing with the Ukrainian Deputy Prime Minister regarding the rights of the Hungarian minority in the Zakarpattia region, with further progress expected in October [12]. In other words, the unlocking of the EPF is highly likely linked to a partial compromise on bilateral issues between Ukraine and Hungary.

2. Current Situation

On September 25, a political agreement on the disbursement of €6.6 billion in EPF funds was reached during an EU Political and Security Committee (PSC) meeting in Brussels [8]. Kaja Kallas, the EU High Representative for Foreign Affairs and Security Policy, officially announced this on the same day [1][4]. European Commission President Ursula von der Leyen also immediately welcomed the decision, stating, 'The agreement on the €6.6 billion EPF is very good news, meaning increased support for Ukraine's defense, from training to equipment' [14].

The funding allocation structure is divided into three parts: €900 million is allocated to the operation of the EU Military Assistance Mission (EUMAM), €1 billion to new joint procurement, and the remaining €4.7 billion to reimburse member states for military aid they have already provided. However, the method of allocating the €4.7 billion among member states and the actual ratio of transfer to Ukraine have not yet been finalized. Germany argues that the entire reimbursement portion should be redirected to support Ukraine, but not all member states agree. Thus, this agreement is closer to crossing a 'threshold for resumption' rather than the 'completion' of aid.

At the same time, the EU made progress on aid to Ukraine through a separate track. During a meeting in Brussels on September 23, EU ambassadors confirmed that Ukraine had completed ten reform tasks, thereby paving the way for €3 billion ($3.4 billion) in financial assistance [9]. This decision, made shortly after a meeting between President von der Leyen and President Zelenskyy, reaffirmed that Ukraine could secure up to €37 billion ($42 billion) by 2026 if it implements the agreed-upon reforms [9].

Meanwhile, disagreements among member states persist on the track of sanctions against Russia. High Representative Kallas urged member states to extend the duration of the EU's comprehensive sanctions against Russia following an informal meeting of European foreign ministers on the sidelines of the UN General Assembly on September 21 [13]. She stated, 'Sanctions are a key pillar of our response to Russia's war' [13]. This demonstrates that the decision to 'expand support' by unlocking EPF funds is occurring alongside ongoing 'internal disagreements' over the extension of sanctions.

A separate bottleneck has been identified on the air defense support track. According to an EAI analysis, during an informal meeting of EU defense ministers held in Ireland on September 1, High Representative Kallas admitted that no progress had been made in securing Patriot interceptors [3]. This is an exogenous bottleneck stemming from the fact that US military Patriot stockpiles in Europe have fallen to critical levels due to the Trump administration's conflict with Iran, combined with the EU's lack of a joint procurement system and its intergovernmental limitations [3]. Even if EPF funds are unlocked, such physical constraints may still hinder the actual procurement of weapons.

The US track is also proceeding in parallel. The Trump administration decided to disburse the remaining $93 million of the $400 million Ukraine Security Assistance Initiative (USAI) budget approved by Congress before the end of the fiscal year on September 30 [15]. Independent of Europe's EPF unlocking, this is primarily an administrative measure by the US to avoid missing the expiration deadline for previously approved funds [15].

3. Key Actors and Their Positions

Hungary (The Orbán Government)has long exercised its veto as the sole opponent within the unanimity-based structure of EU security policy [4][7]. Its recent shift in stance is linked to the adjustment of its own interests, including progress in consultations with Ukraine over the Zakarpattia minority issue and the reduction of its SAFE loan application [10][12]. The Hungarian Ministry of Foreign Affairs reaffirmed its conditional position, stating that while it is 'open to regional cooperation initiatives, [it] wants to clearly understand the purpose, operational methods, and added value for Hungary' [12]. It is reasonable to interpret this not as the disappearance of its fundamental opposition, but rather as a tactical suspension in a specific context.

Kaja Kallas (EU High Representative for Foreign Affairs and Security Policy)took the lead in announcing this agreement, projecting a strong external commitment to expanding support for Ukraine [1][4]. At the same time, she is also pushing for the extension of sanctions against Russia [13], demonstrating her role as a coordinator across EU foreign and security policy. However, during the implementation phase—such as in securing Patriots—she has made remarks acknowledging divisions among member states [3], thereby exposing the gap between policy announcements and execution capabilities.

Ursula von der Leyen (European Commission President)highlighted the political significance of the EPF agreement by defining it as 'increased support for Ukraine's defense' [14]. Around the same time, progress on the €3 billion financial assistance linked to reform implementation followed her direct meeting with Zelenskyy [9]. By combining the EPF and financial assistance tracks, the Commission maintains a conditional support structure that links Ukraine's domestic reforms with external military aid.

Germanyis positioning itself as the largest donor, advocating for the entire €4.7 billion reimbursement portion to be transferred to Ukraine. This aligns with the broader trend of expanding support from major Western European nations, such as the previous approval of a €6.1 billion defense loan and the authorization to transfer Storm Shadow/SCALP missile blueprints [6]. Conversely, other member states do not fully agree, leaving internal negotiations over the actual allocation ratio unresolved.

Ukraine (The Zelenskyy Government)is securing the unlocked EPF funds as resources to strengthen its winter defense posture, while adopting a pragmatic approach that prioritizes securing aid by showing flexibility on bilateral issues, such as the minority question with Hungary [12]. Simultaneously, it is pursuing a dual-track strategy by fulfilling the conditions for EU financial assistance through reform implementation [9].

The United States (The Trump Administration)is observed to be seeking an early end to the war by simultaneously pressuring both sides, such as demanding that Zelenskyy visit Moscow and halt attacks on Russian oil refineries. However, at the working level, it maintains the momentum of existing aid programs independent of political messaging, as seen in completing the disbursement of previously approved USAI funds within the deadline [15].

4. Key Issues

First is the possibility of bypassing the unanimity structure. The resolution of the three-and-a-half-year deadlock through Hungary's tactical shift in stance demonstrates that a single member state's veto can be managed through negotiations on bilateral issues in the future. At the same time, this highlights the vulnerability that similar deadlocks could recur without fundamental institutional reform.

Second is the actual ratio of the €4.7 billion reimbursement portion to be transferred to Ukraine. The final allocation method remains undecided amidst Germany's demand for a full transfer and other member states' hesitant attitudes, remaining a key variable in future internal EU negotiations.

Third is the actual destination of the funds. It remains unclear whether the €1 billion joint procurement fund will be directed toward purchasing US-made weapons or strengthening the European defense industrial base. With the exogenous bottleneck of Patriot stockpile shortages persisting [3], the gap between securing funds and actual procurement capacity is expected to determine the effectiveness of this decision.

Fourth is the strategic divergence between the United States and Europe. While the US focuses on an early settlement through pressuring both sides, the EU is opting to strengthen Ukraine's bargaining power by unlocking the EPF and calling for the extension of sanctions against Russia [13]. As the possibility of ending the war before winter is discussed, the key lies in how this transatlantic difference in approach will be reconciled during actual negotiations.

II. In-Depth Analysis

EU Unlocks €6.6 Billion in European Peace Facility (EPF) Funds: In-Depth Analysis

1. Root Cause Analysis

The root cause of this issue is the institutional vulnerability of a single member state's veto. The EU's Common Foreign and Security Policy (CFSP) relies on unanimity as its primary decision-making mechanism. Based on its opposition to military aid for Ukraine, the Orbán government utilized this structure to block EPF reimbursements for three and a half years [4][7]. Rather than the €6.6 billion figure itself, the more fundamental issue is that a single objection among the 27 member states could paralyze the entire collective security financing mechanism.

Hungary's exercise of its veto was not a matter of pure principle. The timing of this shift in stance reveals its true nature. Around the same time, Hungary reduced its application for the EU's SAFE defense loan from €16 billion to €5.4 billion [10]. This coincided with Hungary remaining, alongside Italy, one of the only two countries that had not received final approval from the Commission [10]. Simultaneously, the Hungarian Ministry of Foreign Affairs announced that Deputy State Secretary Anita Orbán made several contacts with the Ukrainian side during the high-level week of the UN General Assembly and 'resolved the misunderstandings' regarding the rights of the Hungarian minority in the Zakarpattia region [12]. In other words, the unlocking of the EPF is not a renunciation of its principled stance, but rather a transactional compromise reached after securing concessions on parallel issues, such as the minority question and the scale of the SAFE loan. The possibility that the Orbán government recalculated the domestic political utility of its hardline stance against Ukraine after the April general election cannot be ruled out.

2. Structural Context

Political Structure: The Clash between Intergovernmentalism and Supranationalism

EU security and defense policy fundamentally operates within an intergovernmental framework. Unlike trade or monetary policy, this is an area where member states have not transferred their sovereignty. Consequently, the disbursement of funds is impossible solely through the political will of Commission President von der Leyen or High Representative Kallas [14][1]. Because this agreement is the result of inducing Hungary to withdraw its veto rather than the Commission bypassing Hungary, the structural limitations have not been resolved. The possibility of the same unanimity structure causing deadlocks on other issues remains open.

Financial Structure: The Dual System of Member State Contributions and Reimbursements

The EPF is financed through direct contributions from member states, and the current €6.6 billion is divided into three parts: €900 million for the operational costs of the EU Military Assistance Mission (EUMAM), €1 billion for new joint procurement, and €4.7 billion to reimburse member states for military aid already provided. The structural pitfall lies in the fact that the allocation method for the €4.7 billion and the actual ratio of transfer to Ukraine remain undecided. Germany advocates for transferring the entire reimbursement portion to Ukraine, but not all member states agree. This indicates that because the EPF essentially functions as a 'reimbursement' for member states' defense budgets, countries retain the incentive to prioritize their own financial convenience. In other words, while this agreement has opened the pipeline, the volume of water flowing through it may vary depending on each member state's political calculations.

Security Structure: Reducing Dependence on the US and Bottlenecks in Domestic Procurement Capacity

The unlocking of the EPF is an extension of Europe's efforts to offset the uncertainty of US support through its own institutionalized channels. In August, the EU approved a €6.1 billion defense loan, and the UK and France authorized the transfer of Storm Shadow/SCALP missile blueprints [6]. However, securing financial resources does not guarantee the immediate provision of military capabilities. Around the same time, EU defense ministers received Kallas's admission that 'no progress had been made' in discussions on securing Patriot interceptors [3]. This was caused by an exogenous bottleneck where US military Patriot stockpiles in Europe fell to critical levels due to the Trump administration's conflict with Iran [3]. This means that while funds have been released, physical procurement capacity remains constrained by separate limitations, such as member states' willingness to release stockpiles and the production capacity of the European defense industrial base.

3. Historical Precedents and Comparison of Similar Cases

Germany's Sondervermögen and Poland's FWSZ

The unlocking of the EPF aligns with the recent trend of European countries establishing defense funding by bypassing regular budget procedures. Immediately following Russia's full-scale invasion in 2022, Germany created a €100 billion special fund (Sondervermögen) to conduct defense procurement outside the regular budget [2]. Around the same time, Poland established the Armed Forces Support Fund (FWSZ), an off-budget mechanism that accounted for one-third of Poland's defense spending in 2023 [2]. SIPRI points out that as such off-budget mechanisms increase, the risk grows that parliamentary financial oversight cannot keep pace with the rate of spending increases [2]. The EPF's three-and-a-half-year stagnation and its recent unlocking can be seen as a multilateral version of this trend. While individual countries secured speed through off-budget funds, the EU's multilateral fund was caught in a separate bottleneck of unanimity, operating more slowly than national-level mechanisms.

Hungary's Pattern of Repeatedly Utilizing Its Veto

This is not the first time Hungary has used its veto as leverage in EU decisions regarding sanctions against Russia and aid to Ukraine. Immediately following an informal meeting of European foreign ministers on the sidelines of the UN General Assembly in New York on September 21, High Representative Kallas pressured member states to extend sanctions against Russia, stating that 'sanctions are a key pillar of our response to Russia's war' [13]. This suggests that disagreements within the bloc persist [13]. In other words, the unlocking of the EPF does not signify a fundamental shift in Hungary's policy, leaving open the possibility that similar vetoes could be exercised on other tracks, such as sanctions renewal or SAFE loan approvals.

The Pattern of Linking EU Financial Assistance with Reform Conditions

Around the same time, during a meeting on September 23, EU ambassadors confirmed that Ukraine had completed ten reform tasks and approved the disbursement of €3 billion in financial assistance [9]. Commission President von der Leyen reminded Ukraine that it must continue to implement agreed-upon reforms to secure €37 billion by 2026 [9]. Given that both the military aid under the EPF and the financial assistance on the separate track follow a common design of conditional disbursement, the EU's aid structure for Ukraine is establishing itself not as unconditional aid, but as a phased unlocking mechanism mediated by reform implementation and political compromise.

Key Variables Shaping Future Developments

First is the timing and method of finalizing the allocation ratio of the €4.7 billion reimbursement portion among member states and the actual scale of transfer to Ukraine. The practical effectiveness of this agreement will vary significantly depending on whether Germany's demand for a full transfer is met or if individual countries absorb the reimbursements to ease their own domestic fiscal burdens.

Second is how Hungary's consultations on the Zakarpattia minority issue are concluded in October [12]. Should this issue deteriorate again, Hungary's incentive to exercise its veto on other tracks will resurface. Whether the SAFE loan receives final approval is also a variable linked to this [10].

Third is whether the recipient of the €1 billion new joint procurement orders will be US-made weapons or European defense contractors. This serves as an indicator to gauge actual progress in Europe's efforts to strengthen its defense industrial base, and directly affects the European market accessibility of non-European defense firms, including those from South Korea.

Fourth is the timing of when the US-originated bottleneck surrounding the acquisition of air defense assets, such as Patriot systems, is resolved [3]. Even if funding is secured, if physical procurement is delayed, the military effect of unblocking the EPF will inevitably be limited.

Fifth is the political implication of the gap between the US and European approaches to ending the war on this unblocking of funds. While the Trump administration seeks an early settlement by simultaneously pressuring both sides, Kallas made clear her stance of strengthening negotiating leverage through continued support, calling it "good news for Ukraine, bad news for Russia" [1]. This asymmetry, where Europe is expanding support while Washington is rushing to end the war, will be a variable determining which side's logic Ukraine will rely on more at the future peace negotiation table.