The funny thing about red lines set out by the European Union’s top politicians is how they can seem so rigid until they need to be a bit elastic – then watch them stretch.
A Brussels summit of the heads of the 27 capitals broke up without agreement on a legally creative plan to fund a loan for Ukraine by tapping €185 billion of Russian state cash, frozen in Europe thanks to economic sanctions put on Moscow after its all-out invasion in 2022.
Belgium, which hosts the bond depository Euroclear where the Russian central bank assets are immobilised, withheld its backing for the plan. Belgian prime minister Bart De Wever is looking for stronger assurances any legal risk would be borne by all EU states.
One or two years ago the suggestion that Europe should funnel the frozen Russian assets to Ukraine to help finance its forces was a total non-starter. Confiscating the assets would breach international law and could not be considered.
RM Block
The war has continued and the ability of European governments to send tens of billions of euro from their own budgets to Kyiv is being strained. At the same time military aid from the US has stopped under president Donald Trump.
To fill the growing gap between what Ukraine needs to keep fighting and what Europe can provide, European Commission president Ursula von der Leyen and German chancellor Friedrich Merz proposed looking at the Russian assets.
Commission officials are designing a loan structure that they say will allow the EU to take the cash for Ukraine and replace it with an IOU that would be repaid if Moscow compensates Kyiv after the war. Therefore nothing is really – or legally – being confiscated, officials say.
Christine Lagarde, European Central Bank president, told leaders she could give her blessing to the loan plan provided certain questions were answered.
[ EU leaders defer decision on Russian assets as Belgium balksOpens in new window ]
Intense negotiations took place between the commission and the Belgian government on the margins of the summit. The hope was to get EU leaders to agree a joint communique giving political backing to the loan idea, leaving the more technical and legal questions to be ironed out later.
De Wever, a hard-right politician facing domestic coalition pressure, ultimately signed off on a joint statement saying “options for financial support” should be put on the table the next time leaders meet in December. He was not the only one in the room who raised concerns.
“We agreed on the ‘what’ – that is the reparations loans. And we have to work on the ‘how’ – how we make it possible,” von der Leyen said in a late-night press conference after the summit on Thursday.
Failing to convince leaders the loan is legally and politically sound when they meet again in December would be a major setback. Ukraine will begin to run low on funds by the middle of next year.
It is expected Belgium can brought around, but that may not be the hard part.
The mechanics of the loan would probably require national parliaments to pass financial guarantees to cover the cost in a worst-case scenario where repayment to Russia is triggered without Moscow compensating Ukraine. That could happen if EU sanctions freezing the Russian assets (or the €185 billion IOU) are lifted.
The sanctions need to be unanimously renewed every six months. Hungary’s populist prime minister Viktor Orban, who opposes the EU supporting Ukraine, has toyed with blocking the rollover in the past.
Reforming the sanctions system, something all 27 leaders – including Orban – would need to authorise, will be politically very difficult.
Alternatively, EU states could jointly borrow money themselves to finance a large loan to Ukraine, but Merz and other fiscally conservative leaders would have to first drop their opposition to taking on shared European debt.
A decision will have to be made soon.
