The European Peace Facility (EPF) is a €20billion (£17.1bn) EU fund that helps cover the costs of weapons for Ukraine.
Germany has argued that the EPF should take into account the billions in military aid it has already donated to Kyiv directly, according to a “confidential” paper leaked to The Daily Telegraph.
The leaked document says that “in kind contributions” should be “fully credited against a member state’s agreed contributions to the Ukraine envelope”.
European capitals were reportedly stunned by Olaf Scholz’s U-turn, amid fears it could hamper EU unity on Ukraine.
Ukraine is also understood to be alarmed by the news, since Germany, the EU’s largest economy, contributes a quarter of the EPF’s total funds.
The dramatic German reversal followed a recent shock constitutional court verdict that blew a €60billion (£51bn) hole in Berlin’s budget.
The court ruled that Chancellor Scholz’s government had breached a debt brake, which places a limit on public spending.
Hungarian PM Viktor Orban had previously been the biggest obstacle to the war chest for weapons supplies to Kyiv, saying that contributions to the fund should be “voluntary”.
The news comes less than 24 hours after President Zelensky admitted that Ukraine’s counteroffensive against invading Russian forces did not achieve the success he had hoped for.
The counteroffensive is widely viewed as having failed to quickly deliver the hoped-for gains, despite significant Western backing.
The Ukrainian leader told the AP news agency: “We wanted faster results.
“From that perspective, unfortunately, we did not achieve the desired results. And this is a fact.”
However, he remained defiant: “Look, we are not backing down, I am satisfied. We are fighting against the second-best army in the world: I am satisfied.
“We are losing people: I’m not satisfied. We didn’t get all the weapons we wanted: I can’t be satisfied, but I also can’t complain too much.”