On Monday 17 November, the European Commission presented the Member States with three main options for helping Ukraine, which has been facing military aggression from Russia since February 2022, to meet its “substantial” financial needs, estimated at almost €136 billion (€52.3 billion for budgetary requirements, €83.4 billion for military requirements).
In its note, a copy of which Agence Europe has obtained, the EU institution comes out neither for nor against a specific option, leaving it to the European Council to take a decision at the European summit on 18 and 19 December. To date, political leaders remain of the view that the ‘Reparation Loan’ option, which aims to make the most of Russian public assets tied up in the EU and which Ukraine would only repay once Russia has paid war reparations, is the most realistic and least costly option for national public finances (see EUROPE 13751/16).
With regard to the ‘Reparation Loan’, the Commission again describes how this financial instrument works and the guarantees required from the EU and/or the Member States to ensure its long-term operation (see EUROPE 13720/4). This time, it provides new clarifications designed to reassure Belgium, the country hosting the Euroclear central securities depository where €185 billion of Bank of Russia assets are frozen.
To secure the future loan, Member States would provide the EU with “legally binding, unconditional, irrevocable and on-demand guarantees”, divided between the EU27 on the basis of their GNI. These guarantees would be used in particular to ensure that the Member States provide Euroclear with the necessary liquidity if the company has to reimburse Russia if the European sanctions against the Russian central bank are not renewed. They would remain in force unless the risks were assumed by the EU budget after 2027.
Bilateral treaties. The Commission extends the scope of the guarantees to “risks stemming from bilateral investment treaties” and linked to Russian sovereign assets, during and after their immobilisation. This provision is designed to convince Belgium that the EU will be at its side should the Kremlin initiate disputes under the bilateral treaty linking Brussels and Russia.
In order to minimise these risks, the EU has adopted a “prohibition to enforce arbitral awards linked to the immobilisation of Russian assets within the Union”. “Additional legal safeguards should be envisaged to further reduce the risks”, it also admits, calling on Member States to “withdraw from the relevant bilateral investment treaties”.
In its note, the Commission remains convinced that the ‘Reparation Loan’ formula respects international law by not confiscating Russian assets, while mobilising the cash flow they generate. However, it does not rule out possible “knock-on effects” on financial markets, if stakeholders - “incorrectly” - perceive the loan “as a confiscation”. It believes that this risk will be reduced “if international partners take similar measures to the ‘Reparation Loan’”.
Whichever aid formula is chosen, the time required to put the package in place legally will not allow the EU to make the first payments to Ukraine before the second quarter of 2026. Bridge financing solutions will have to be found in the meantime, and the EU is in discussions with its G7 partners to this end.
Two other options. The two other options envisaged by the EU institution are as follows: - the provision by Member States of bilateral financial support of up to €90 billion in the form of grants; - the provision by the EU of a loan to Ukraine which would not be based on Russian frozen assets.
For each of these two options, the Commission is considering several formulas. With regard to the option of bilateral aid, for example, it does not rule out intervention by the European Stability Mechanism (ESM). If authorised by a revision of the treaty establishing it, the permanent euro area rescue fund could borrow on the markets to lend funds to euro area countries for transfer to Kyiv.
Finally, the Commission stresses that the three options can be combined depending on the political decisions that are taken. More costly in terms of Member States’ budgets, one of the above two options could be implemented while awaiting the ‘Reparation Loan’.
Link to the note on the three financing options for Ukraine: https://aeur.eu/f/jh9 (Original version in French by Mathieu Bion with Solenn Paulic)