BRUSSELS — France and Italy can now feel reassured following a communication from the EU’s statistics office regarding the financial guarantees associated with a substantial €210 billion financing package for Ukraine. Eurostat indicated that these guarantees, which are supported by frozen Russian state assets located in Belgium, will be classified as “contingent liabilities.” This classification implies that the guarantees will only affect the national debt of these countries if they are actually called upon.
Clarification on debt implications
Amid concerns about their already significant debt levels, both Paris and Rome sought clarification from Eurostat on how these guarantees would fit within the EU’s public spending regulations. Currently, both nations carry a debt-to-GDP ratio exceeding 100 percent, making this clarification crucial for them.
Eurostat’s correspondence is anticipated to mitigate apprehensions that participating in the loan could damage investor confidence in nations grappling with high debt and possibly elevate their borrowing expenses. This reassurance comes at a critical juncture as EU leaders are scheduled to deliberate on the initiative in a summit next week. A failure to finalize an agreement could jeopardize Ukraine’s financial stability in its ongoing struggle against Russian military aggression.
Risk-sharing among EU countries
The European Commission has proposed that all EU member states contribute to the financial risk by providing guarantees for the loan in case the Kremlin seeks to reclaim its frozen assets, currently held in the Euroclear financial depository in Brussels.
“None of the conditions” that would lead to EU liability being transferred to member states “would be met,” Eurostat stated, emphasizing that the likelihood of EU countries ever having to honor those guarantees is minimal.
Instead, the responsibility for these guarantees will lie with the Commission, as clarified by the agency. Germany is expected to shoulder a significant portion of the loan, with a guarantee totaling around €52 billion under the initial draft rules put forth by the Commission. This amount is likely to increase further, especially as Hungary has already opted out of participating in the funding efforts for Ukraine.
On the other hand, Belgium remains steadfast in its demand for higher guarantees and stronger legal protections against any potential Russian retaliation, indicating that the recent letter may not alter its position.
One of the primary challenges facing the Commission’s proposal is the risk that the frozen assets could be released if nations sympathetic to Russia, such as Hungary and Slovakia, choose to oppose the renewal of existing sanctions. Currently, EU protocols require unanimous approval for the reauthorization of these sanctions every six months, giving pro-Russian countries a significant influence over the situation.
To counter this possibility, the Commission has suggested a contentious legal adjustment that is set to be discussed by EU ambassadors today. Eurostat characterized the potential for EU member states to have to fulfill financial obligations for the loan as “a complex event with no obvious probability assessment at the time of inception.”