BRUSSELS (AP) — Nearly four years after Russia’s full-scale war against Ukraine, European Union leaders have pledged to fund Kiev’s economic and military needs for the next two years, one way or another. Ukraine is desperate and needs money by early 2026.
At a summit next week, the 27 EU leaders will weigh whether to use tens of billions of dollars in frozen Russian assets held in Europe to help meet Ukraine’s demands, which the International Monetary Fund puts at 135 billion euros ($157 billion).
Such a move has never been made before and comes with risks. The European Central Bank has warned that if Europeans appear willing to grab other countries’ money, it could undermine confidence in the euro. Some member nations are also concerned about inviting retaliation from Russia.
Belgium, where most of the assets are held, is the main opponent of the plan. He fears that Russia will retaliate, either through the courts or in more nefarious ways. A series of drone incidents near airports and military bases last month suggested the Kremlin was already doing so, but those responsible have never been publicly identified.
European Council President Antonio Costa, who will chair the summit on December 18, insisted that leaders would not leave EU headquarters in Brussels until a decision was made.
Two options await debate
EU leaders froze the money, most of it in the assets of the Russian Central Bank, because of the war Putin launched in February 2022. Moscow described the scheme as “theft”.
Two plans emerged. The first would be a “loan for reparations” that would use Russian assets until Moscow agrees to pay for the damage caused to Ukraine. Few believe Russian President Vladimir Putin will ever agree to pay reparations.
Plan B would be for the EU to borrow money from financial markets, just as the bloc did to finance a massive borrowing plan to revive European economies after the coronavirus pandemic.
Many of Europe’s major economies are cash-strapped and debt-ridden. But Russia’s war against Ukraine poses an existential threat to the bloc. Intelligence assessments suggest that Putin could launch a war elsewhere within three to five years if he defeats Ukraine.
Assets constitute a substantial pot of potentially ready-to-use cash.
The European Commission, the EU’s executive arm, estimates that 210 billion ($244 billion) worth of frozen assets are currently held in Europe. The vast majority — about 193 billion euros ($225 billion) at the end of September — is held in the Belgian financial clearinghouse known as Euroclear.
There are also political advantages. If the EU chooses to use the assets, only a “qualified majority” of countries – roughly a two-thirds majority – would be required for the green light. Borrowing on the financial markets would have to be supported by all, which means that even a single “no” vote would sink the idea.
Over the past year, Hungary has blocked EU support for Ukraine at almost every turn. Slovakia’s government is also starting to dig in. A strident new nationalist leader in the Czech Republic could further complicate the decision.
Avoiding a veto is in the interests of the vast majority of member countries.
Details of the repair loan
Unveiling her plan on December 4, European Commission President Ursula von der Leyen said the EU would cover two-thirds of Ukraine’s needs for 2026 and 2027, for a total of 90 billion euros ($105 billion). International partners would fill the gap.
Due to EU sanctions on Russian assets, cash balances have accumulated at Euroclear. They have generated interest — about 3.9 billion euros ($4.5 billion) this year, Euroclear says — which is already being used to finance a Group of Seven loan plan for Ukraine.
Under the new plan, part of the cash would be transferred to an EU debt instrument. Ukraine would owe the EU money, but would only repay after the bloc’s sanctions are lifted and Russia agrees to pay war reparations.
The commission insists there is no “theft”, as Russia has claimed, because the right of the Russian Central Bank to make a claim on its money and Euroclear’s duty to repay will remain intact.
Once Putin pays war reparations, Ukraine will reimburse the EU, the EU will reimburse Euroclear, and Euroclear will reimburse the Russian Central Bank.
Opposition from Belgium
Importantly for Belgium, the plan contains guarantees to ensure that the risks will be shared by its partners. Other EU countries would offer to guarantee the loan if something went wrong. Germany has already signaled that it will do so.
But the Belgian government was not reassured. Even before the commission’s loan plan for reparations was made public, Foreign Minister Maxime Prévot said it “carries consistent economic, financial and legal risks.”
Prévot said Belgium — a strong supporter of Ukraine that has provided military and financial support — feels its concerns are not being heard by its EU partners.
“We are not seeking to antagonize our partners or Ukraine. We are simply seeking to avoid the potentially disastrous consequences for a member state that is asked to show solidarity without being given the same solidarity in return,” he said.
In an interview with Belgian public broadcaster RTBF last week, Euroclear CEO Valerie Urbain also said court action could not be ruled out if the EU forced the clearing house to transfer its Russian assets.