BRUSSELS (AP) — European Union envoys narrowed their differences on Tuesday on a plan to use billions of dollars in frozen Russian assets as collateral for a massive loan to meet Ukraine’s economic and military needs over the next two years, ahead of a summit of EU leaders later this week.
Nearly four years after Russia launched an all-out war in Ukraine, the leader has pledged to fund Kyiv’s needs, with the International Monetary Fund estimating funding at 135 billion euros ($157 billion). Ukraine is eager to receive the funds by early 2026.
“We don’t have time to spare,” Swedish EU Affairs Minister Jessica Rosencrantz told reporters in Brussels. “Now is indeed the time to make a decision, and Sweden is willing to share the risk because the costs and risks of inaction are greater.”
Such a move has never been done before and carries risks. The European Central Bank has warned that if Europeans are willing to grab other countries’ funds, it could undermine confidence in the euro. Some member states also fear incurring retaliation from Russia.
Belgium, which holds most of the assets, is the main opponent of the plan. It fears Russia will fight back through the courts or in more sinister ways.
European Council President Antonio Costa, who will chair Thursday’s summit, insisted that leaders should not leave EU headquarters in Brussels until a decision is made, even if that takes days.
Deep freeze, there are two options
EU leaders froze the funds, mostly Russian central bank assets, as Russian President Vladimir Putin launched a war in February 2022. Moscow called the plan “theft.”
Then last Friday, the EU froze the assets indefinitely – estimated to total around 210 billion euros ($247 billion) – to ensure that Hungary and Slovakia, both countries with pro-Moscow governments, could not prevent billions of euros from being used to support Ukraine.
It also ensures that the United States or Russia cannot use these assets in any Ukraine peace talks without European approval.
Two plans have emerged to use the funds. The first is a “compensation loan” that will use Russian assets until Moscow agrees to pay damages caused to Ukraine. Few think Putin will agree to pay compensation.
Plan B would be for the EU to borrow money on financial markets, just as it has done to fund a massive lending program to revive the European economy after the coronavirus pandemic. But many of Europe’s major economies are strapped for cash and mired in debt.
These assets constitute a large amount of potentially readily available cash. As of the end of September, the vast majority of the funds – about 193 billion euros ($227 billion) – were held in Belgian financial clearing house Euroclear.
Plan A had clear political advantages. If the EU chooses to use the assets, only a “qualified majority” of countries (approximately a two-thirds majority) will be needed to gain approval. Borrowing money in financial markets must be approved by everyone, meaning even just one negative vote can put the idea on hold.
Last year, Hungary blocked EU support for Ukraine at almost every turn. The Slovak government is also beginning to hold on. Avoiding the veto is in the interest of the vast majority of member states.
Compensation loan details
European Commission President Ursula von der Leyen said the EU would meet two-thirds of Ukraine’s needs in 2026 and 2027, with loans totaling 90 billion euros ($105 billion). International partners will fill this gap.
Euroclear’s cash balances have been building up due to EU sanctions on Russian assets. Under the new plan, some of the cash will be transferred into EU debt instruments. Ukraine owes the EU the money but will only repay it after EU sanctions are lifted and Russia agrees to pay war reparations.
The commission insisted there was no “theft” claimed by Russia, as the Russian central bank’s rights to make claims on its funds and the European Bank for Settlements’ repayment obligations would remain unchanged.
Once Putin pays war reparations, Ukraine will repay the EU, the EU will repay the European Bank for Settlements, and the European Bank for Settlements will repay the Russian central bank. Russia’s central bank has sued clearing houses in recent days to recover funds, increasing pressure ahead of the summit.
belgian opposition
Importantly for Belgium, the plan contains safeguards to ensure that its partners share the risk. If something goes wrong, other EU countries will offer to guarantee the loan. Germany has said it will do so, as Sweden did on Tuesday.
But the Belgian government is undeterred. Even before the European Commission’s compensation loan scheme was announced, the UK government warned of the “ensuing economic, financial and legal risks” and said it believed its concerns were not being listened to by EU partners.
The European Bank for Clearing has not ruled out taking legal action if the EU forces it to transfer Russian assets.
But Ukrainian President Volodymyr Zelensky agreed that the reparations loan would be “a game changer. Why? Because it is a security guarantee for Ukraine – a financial security guarantee.” He said Ukraine would be free to spend the money on its economy, infrastructure or armed forces, depending on how the war progressed.
___
Susie Blancn in Kyiv contributed to this report.
