The headquarters of Euroclear in Brussels, on Oct. 23. Belgium-based Euroclear, the world’s biggest depository of securities, is against a proposal to use Russian assets to help Ukraine's war effort.Geert Vanden Wijngaert/The Associated Press
Ever since Donald Trump cut funding to Kyiv, the European Union has been looking for ways to keep Ukraine in the fight against Russia. Doing so meant finding a lot of money – fast.
But how? Grants from EU countries (plus the U.K.) or Eurobonds were two options, both of which would add to the financial burden of the member states. The third option came with the appeal of free money: Use frozen Russian assets to underpin an interest-free loan to Ukraine. If Russia were to refuse to pay war reparations, the loan would not be paid back.
In recent days, the European Commission, the EU’s executive arm, has been scrambling to launch a “reparations loan,” which would be secured by the some €210-billion of liquid Russian financial assets held in Europe. Speed is essential because the Ukrainian government is expected to run out of cash in the early spring. Kyiv needs a torrent of fresh money to keep its budget intact and equip its armed forces, which are slowly losing ground on the eastern front.
The plan may not work. Belgium and Euroclear, the Brussels-based bank that is the world’s biggest depository of securities, including €185-billion of sovereign Russian assets, are dead set against the proposal. Their positions have hardened in recent weeks, as has that of Hungary, the EU member state whose Prime Minister, Viktor Orbán, is Russian President Vladimir Putin’s biggest fanboy in Europe.
A man walks around an improvised memorial to fallen soldiers killed in the Russia-Ukraine war at Independence square in Kyiv, Ukraine, on Wednesday.Efrem Lukatsky/The Associated Press
If Ukraine is to avoid a financial crisis, the EU must find a way to overcome its internal divisions. The EC and the EU countries that support the loan would like to announce its inception at the Dec. 18-19 EU summit.
The heated efforts to overcome the objections of Euroclear, Belgium and Hungary come as Mr. Trump is piling pressure on his Ukrainian counterpart, Volodymyr Zelensky, to sign a peace deal that would see Ukraine accepting territorial losses in exchange for undefined security guarantees from the U.S. Washington reportedly wants an answer by Christmas.
Mr. Trump does not support using frozen Russian assets to back a Ukrainian bailout. The White House has floated the idea of using some of the assets to fund U.S.-led postwar reconstruction efforts, with the U.S. claiming half of any investment profits. Mr. Zelensky told European leaders Monday that he feared the EU would drop its own loan plan for fear of upsetting the White House, potentially jeopardizing the mooted U.S. security guarantees for Ukraine.
Still, as of Wednesday, the EC was charging ahead with its plan, which would initially equip Ukraine with a €90-billion loan, less than half of the €210-billion of frozen assets held across Europe. The latest strategy would see the EC use emergency powers normally reserved for dealing with financial crises to indefinitely impose sanctions on the Russian assets, bypassing a potential veto from Hungary, Belgium or any other EU country that opposes the plan.
Ukrainian President Volodymyr Zelensky said on Monday that unity between Europe, Ukraine and the U.S. was important when negotiating an end to Russia's war in Ukraine. He made the remark during a visit to London, where he is rallying support among Kyiv's allies in a U.S.-led peace push.
Reuters
Belgian Prime Minister Bart De Wever and Euroclear chief executive officer Valérie Urbain have legitimate worries about the reparations loan. They centre on the legalities of using frozen, though not technically seized, Russian assets to fund the loan. Doing so may be illegal under international law, all the more so since the assets are not considered ill-gotten gains. If they were, say, the proceeds of a cocaine trafficker’s money-laundering operations, there would be no argument.
“There is no free money for the European Union from Euroclear,” Ms. Urbain recently told the Frankfurter Allegemeine Zeitung newspaper. “These are Euroclear funds and they are pegged to reimbursement claims of the central bank of Russia. Anyone believing they may use them indulged in wishful thinking. It is merely impossible without significant risks.”
The counterargument is that a reparations loan may not violate international law because the UN General Assembly has condemned Russia’s “illegal use of force” in Ukraine. Perhaps, but Euroclear and Belgium argue that the loan takes the EU into uncharted legal territory.
Zelensky ‘ready’ to hold wartime election if U.S. provides security guarantees
Euroclear assumes that Russia will sue to reclaim control of the assets, which it would certainly do if the war ends and the sanctions are lifted. Euroclear wants liability protection. So does Belgium, which knows that if Euroclear can’t hand back the Russian assets on its books, the state might be liable for the full amount. Mr. De Wever has demanded “legally binding, unconditional, irrevocable, on-demand” guarantees covering the full €185-billion of Russian assets held at Euroclear.
Belgium also fears that Russia might nationalize European-owned businesses, including Belgian ones, if it chose to get nasty. Russia has already seized billions of dollars’ worth of foreign-owned energy businesses in retaliation for the West’s sanctions.
For her part, EC President Ursula von der Leyen has said that virtually all of Belgium’s concerns have been addressed, assuring Mr. De Wever that “we will share the burden in a fair way.” He does not seem convinced, and the loan proposal could collapse at next week’s summit.
If it does, the EU might consider Eurobonds to fund Ukraine, a risky ploy. Eurobonds are not free money, and issuing them could dilute Europeans’ already waning resolve to keep Ukraine in fighting form.