European governments have accused Belgium of making excessive demands for guarantees in case the Kremlin sues over the use of €140 billion in frozen Russian assets held in Brussels.
Politico writes about this, citing sources.
The reluctance of European governments could derail negotiations on an EU plan to provide Ukraine with a loan secured by these frozen assets ahead of a crucial summit in December.
The European Commission is due to publish the legal framework for this loan soon. EU leaders will state their position when they meet in mid-December.
The so-called reparations loan is extremely controversial for the Belgian government because it uses money from frozen Russian state assets on Belgian territory to finance Ukraine.
Amid fears of Russian retaliation, Belgian Prime Minister Bart de Wever is pushing for EU governments to provide Belgium with financial guarantees worth more than €140 billion that can be disbursed within days. He also wants the guarantees to last longer than the EU sanctions against Russia.
While European governments are willing to guarantee a pre-agreed amount, they are unwilling to accept a “blank check”. Four EU diplomats said they could not accept de Wever’s demand because it would place their country’s financial viability at the mercy of the court’s decision and potentially expose them to multibillion-dollar payments years after the war in Ukraine ends.
“If [the guarantees] are endless and without limits, what are we getting ourselves into?” said one EU diplomat.
To secure political support, the European Commission showed sections of its legal draft to some EU ambassadors — but left the specific amount of guarantees blank.
In addition, sources told the Financial Times that the European Central Bank refused to support a reparations loan. The bank was offered to become a lender of last resort for Euroclear to avoid a liquidity crisis. The bank said that this was impossible and effectively equivalent to providing direct financing to governments.
The ECB said that "such a proposal is not being considered as it would likely violate EU treaty law, which prohibits monetary financing".
This practice, which economists call “monetary financing”, is banned by EU treaties due to evidence that it leads to high inflation and a loss of confidence in the central bank.
If there is no progress, the most likely alternative is to issue more EU debt to cover Ukraine’s budget deficit. But this idea is unpopular with most EU governments because it involves using taxpayers’ money.
What is a "reparation loan"?
The possibility of providing Ukraine with a €140 billion loan using frozen Russian assets has been discussed since early October. At that time, EU leaders were unable to agree on the loan — Belgium opposed it, and France and Luxembourg were concerned about the legal consequences.
The European Commission has proposed providing Ukraine with a loan using Russian state assets held in Euroclear, a Belgian financial institution. Under the plan, if Russia refuses to pay reparations to Ukraine after the war, it will lose rights to these assets.
Belgium opposed the plan out of concern that Russia would sue it if it went ahead. Belgian Prime Minister Bart de Wever asked the other 26 EU countries to guarantee coverage of legal and financial risks.
Politico reported on October 21 that EU ambassadors had tentatively agreed on a plan to provide a “reparations loan” for Ukraine. However, at a meeting on October 23, EU leaders did not agree to allocate the loan and postponed the issue until December.
Euronews wrote on November 8 that negotiations between the European Commission and the Belgian authorities on using frozen Russian assets to help Ukraine have not yet yielded any results.
Meanwhile, according to Bloomberg, Russia has prepared a response to the Westʼs possible "reparations loan" to Ukraine — it will nationalize foreign assets.
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