BRUSSELS — The European Union is intensifying its efforts to persuade member states that are hesitant to contribute financially towards the reconstruction of Ukraine, emphasizing that if they do not compel Russia to cover the expenses, they may find themselves footing the bill instead.
Shifting strategies amid financial reluctance
The European Commission is acutely aware that its secondary strategy—known as eurobonds or joint EU borrowing—faces significant resistance, particularly from fiscally conservative countries like Germany and the Netherlands, often referred to as the “frugals.” These nations are opposed to increasing public debt for taxpayers, while economically burdened countries such as France and Italy are also unwilling to take on further financial obligations. The Commission aims to sway these nations by presenting the joint borrowing option as a less palatable alternative, especially in light of the recent obstacles faced in utilizing frozen Russian assets.
“€140 billion is a ton of money and we have to use it. We have to show that we’re not afraid,”
said Karel Lannoo, chief executive of the Centre for European Policy Studies, a prominent Brussels think tank. European governments and the European Central Bank have gradually warmed to the concept of using seized Russian assets to fund the substantial €140 billion reparations loan needed for Ukraine. Initially, there was hesitation due to the potential legal and ethical implications of appropriating another nation’s funds, regardless of its actions. However, the urgency of Ukraine’s financial needs, compounded by the unpredictable stance of Washington, has shifted perspectives.
A race against time for Ukraine’s funding
At a recent summit of EU leaders, Belgium’s Bart De Wever expressed steadfast opposition to the asset seizure plan, which requires unanimous consent from all 27 member states. This impasse has resulted in a delay, pushing the approval process to at least December. The EU now faces two pressing challenges: the imminent financial depletion of Ukraine by the end of March and the potential for Hungary to join forces with Czechia and Slovakia in forming a Ukraine-skeptic alliance, which could complicate decision-making further.
As the situation unfolds, EU officials are navigating a complex diplomatic landscape to ensure the asset plan is approved. “This is diplomacy,” noted one anonymous diplomat involved in the discussions. “You offer people something they don’t want to do, so they accept the lesser option.” Another diplomatic source dismissed the viability of eurobonds, calling it “simply laughable.” Although De Wever has highlighted the complexities and legal ramifications of the plan, the EU remains optimistic that a resolution will be reached by the next leaders’ meeting.
An EU official confidently stated, “The Russian asset-backed loan is going to happen. Not a question of if — but when.”
Many European countries have long resisted eurobonds, fearing that they would be liable for the debts of nations perceived as financially irresponsible. However, the Covid pandemic prompted an unprecedented instance of collective borrowing to fund an €800 billion recovery package, marking a significant shift in fiscal policy. Despite ongoing opposition to widespread eurobond usage, the EU has continued to mutualize debt for various initiatives.
There remains a third option, which involves searching for an estimated €25 billion in Russian assets across the EU. However, this endeavor is likely to take longer than the urgency of Ukraine’s situation allows. “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,” asserted Swedish Europe Minister Jessica Rosencrantz following the summit.
The majority of the frozen assets are managed by Euroclear, a financial depository located in Belgium, placing the country at considerable legal and financial risk. A spokesperson for the Commission emphasized that discussions with Belgian authorities are ongoing and that any proposal would adhere to collective risk-sharing principles.
The Commission has attempted to alleviate concerns regarding the risks to Belgium, asserting that the €140 billion would only be returned to Russia if the Kremlin ceases hostilities and compensates Ukraine. Given the current geopolitical landscape, the likelihood of such an event materializing appears exceedingly slim.
Belgium, however, worries about the potential for Russia to mount a legal challenge to reclaim its assets, especially considering their historical investment treaty signed in 1989. Despite these concerns, officials remain optimistic about reaching an agreement. “I really expect that at the next European Council [scheduled for Dec. 18] there will be finally progress,” remarked Lithuanian Foreign Minister Kęstutis Budrys.