BRUSSELS — The EU is ratcheting up pressure on governments reluctant to agree on funding for war-ravaged Ukraine — telling them if they don’t force Russia to foot the bill, they’ll have to do it themselves.
The European Commission is acutely aware that its plan B — joint EU borrowing known as eurobonds — is even more unpalatable for funding a €140 billion reparations loan for Kyiv than its idea of using frozen Russian state assets, which hit a roadblock last week. Governments historically hostile to big spending, especially Germany and the Netherlands, nicknamed the “frugals,” loathe the prospect of piling greater debt onto taxpayers. Spendthrift nations, France and Italy in particular, are too indebted to take on more.
But that’s the point. European officials are betting that Belgium, which houses nearly all the assets and has expressed concerns about the legitimacy of seizing them, along with other countries that have raised objections more quietly, will be won over to the plan by the prospect of the joint borrowing alternative, which they’ve long considered toxic.
“The lack of fiscal discipline [in some EU countries] is so high that I don’t believe that eurobonds will be accepted, certainly by the frugals over the next 10 years,” said Karel Lannoo, chief executive of the influential Centre for European Policy Studies, a Brussels think tank. That’s why using the frozen Russian assets looks like the only game in town. “€140 billion is a ton of money and we have to use it. We have to show that we’re not afraid.”
European governments and the European Central Bank have slowly come round to using seized Russian assets to fund the €140 billion. Initially they were wary, considering snatching another country’s cash ― no matter how badly that country had acted ― legally and morally dubious. But Ukraine’s pressing needs, and Washington’s uncertain approach, has focused minds. At last week’s summit of EU leaders, however, Belgium’s Bart De Wever refused to budge on the plan, which needs the backing of all 27 governments, forcing the bloc to postpone its approval until December at the earliest.
‘This is diplomacy’
Now the EU is in a race against time on two fronts. First, Ukraine is set to run out of money by the end of March. And second, decision-making of any kind could be about to become far tougher as Hungary looks to join forces with Czechia and Slovakia to form a Ukraine-skeptic alliance. There’s a sense that it’s now or never.
That means Commission officials are engaged in a delicate balancing act to get the assets plan across the line, three EU diplomats said.
“This is diplomacy,” said one of the diplomats with knowledge of the choreography, granted anonymity to speak freely about the plans. “You offer people something they don’t want to do, so they accept the lesser option.”
A second diplomat familiar with the situation was equally dismissive of plan B. “The idea that eurobonds could seriously be on the table is simply laughable,” they said.
So although De Wever told his fellow leaders at the EU summit last week that the Commission had underestimated the complexity of using Russian assets and the legal knock-on effect it could have in Belgium, the EU doesn’t think he’ll hold out past December, when leaders are scheduled to meet again.
The Russian asset-backed loan “is going to happen,” an EU official said. “Not a question of if ― but when.”
Step up support
Many European nations have long opposed the idea of eurobonds, believing they shouldn’t be on the hook for indebted governments they perceive as unable to keep their finances in order.
The Covid pandemic weakened their resolve, with governments agreeing to joint borrowing to finance an €800 billion recovery fund to revive the bloc’s economy. Brussels has continued to mutualize EU debt since then to fund other initiatives, most recently involving a series of loans to help capitals procure military contracts to bolster their defenses against Russia, but capitals are still broadly against its widespread use.
There is a third option on the table: The EU could embark on a €25 billion treasure hunt for Russian assets in other countries across the bloc.
This, though, is likely to take more time than Ukraine has so it could look as if Europe is taking its foot off the gas.
“Support for Ukraine and pressure on Russia, that is ultimately what could bring Putin to the table and that’s why it’s so important that the European countries step up,” Swedish Europe Minister Jessica Rosencrantz told reporters after Thursday’s summit.
Collective risk
The vast majority of the assets are under the guardianship of a financial depository called Euroclear in Belgium, leaving the country with considerable financial and legal risk.
“The Commission has engaged in intensive exchanges with the Belgian authorities on the matter and stands ready to provide further clarifications and assurances as appropriate,” a Commission spokesperson said. “Any proposal will build on the principle of collective risk sharing. While we see no indication that the Commission`’s original approach would lead to new risks, we certainly do agree that any risk coming with our future proposal will of course have to be shared collectively by member states and not only by one.”
The Commission has played down the risks to Belgium, stressing that the €140 billion would only be repaid to Russia if the Kremlin ends the war and pays reparations to Ukraine. The chance of that happening is so remote that the money is unlikely ever to be repaid.
But Belgium fears Moscow could send in an army of lawyers to get its money back, especially considering the country signed a bilateral investment treaty with Russia in 1989.
The officials and diplomats interviewed for this article remain confident of an agreement.
“I really expect that at the next European Council [scheduled for Dec. 18] there will be finally progress,” Lithuanian Foreign Minister Kęstutis Budrys told POLITICO.
Gerardo Fortuna contributed to this article.
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