With two weeks to go before a decisive European Council, on Wednesday 3 December the European Commission officially presented two options – a European loan guaranteed by the Multiannual Financial Framework (MFF) and a ‘Reparations Loan’ exploiting all the Bank of Russia’s assets immobilised in the EU – to provide €90 billion to cover two-thirds of Ukraine’s civil and military financing needs, estimated by the IMF at €135 billion for 2026 and 2027.
At a time when negotiations, led by the United States and excluding the Europeans, are under way to put an end to Russia’s war of aggression in Ukraine, the aim of this new financial support is to give Ukraine “the means to defend itself”, to put it “in a position of strength” in these negotiations and to show Russia that “we’re in for the long haul”, declared the President of the EU institution, Ursula von der Leyen.
While Ms von der Leyen and a majority of Member States, such as Germany, prefer the ‘Reparations Loan’ option, notably because it places more of the financial burden on Russia, the Commission agreed to present two of the three options initially envisaged (see EUROPE 13753/13).
These two options can, “in theory”, be combined, said a European source.
According to Ms von der Leyen, an EU loan would require “unanimous” approval by the Member States. “If unanimity is reached to amend the current MFF regulation”, it could be funded from the EU budget from the outset, if not from 2028 with the entry into force of the 2028-2034 MFF, said Valdis Dombrovskis, European Commissioner for Economy.
If this is not possible before 2028, the Member States will have to provide national public guarantees equal to their share of the EU budget (GNI-based distribution key), or even cover the share of countries not participating in the financial operation. These guarantees will increase their public debt.
€210 billion already earmarked for the ‘Reparations Loan’
The architecture of the ‘Reparations Loan’ is as described by the Commission in preparatory notes (see EUROPE 13720/4). The aim is to make the best possible use of the cash balances from EU financial institutions holding immobilised Russian Central Bank assets, but without confiscating them, as this would be contrary to international law. Currently, €185 billion are held by the Euroclear clearing house based in Belgium.
Ukraine would repay this loan only after Russia had paid war reparations. Such an arrangement assumes that the sanctions against the Bank of Russia, which are renewed every six months, remain in place until then. If the sanctions are not renewed, the EU and its Member States will have to act as guarantors to provide the necessary liquidity. The guarantees must also cover the legal risks that a Member State could incur if it were the subject of a dispute initiated by Russia.
Technically, in order to set up the ‘Reparations Loan’, the Commission is proposing to amend the Regulation (2024/792) establishing the Ukraine Facility, EU macro-financial assistance worth €50 billion over the period 2024-2027 (see EUROPE 13344/18).
In fact, the legislative proposal is to provide an open-ended loan of up to €210 billion: - €95 billion would go to macro-financial aid (including the €45 billion EU contribution to the G7 ‘ERA’ loans); - €115 billion would go to military support. This figure of €210 billion corresponds to the €185 billion of Russian assets immobilised within Euroclear, plus €25 billion of Russian assets immobilised elsewhere in the EU.
Payment would be conditional on the Ukrainian government presenting an annual ‘financing strategy’ detailing its budgetary expenditure.
With regard to aid for the Ukrainian war effort, Ms von der Leyen indicated that, in accordance with the cascade method of the ‘SAFE’ instrument, purchases would be made firstly from Ukrainian suppliers, then for equipment from EU and EEA/EFTA countries, and finally for equipment from third countries, if necessary.
In addition, provisions for sound financial and administrative management would be introduced, such as the creation of a dedicated central account (‘special account’) to track expenditure linked to financial aid. Above all, a ‘no-return’ clause would be introduced to prevent Ukraine from removing ‘anti-corruption’ measures already in place in order to avoid a repeat of the situation that once threatened the independence of the NABU and SAPO offices (see EUROPE 13692/23).
“Virtually all” of Belgium’s concerns taken into account
Ms von der Leyen assured that the ‘Reparations Loan’ proposal, which could be adopted by a “qualified majority” of Member States, addresses “virtually all” of the concerns expressed by Belgium (see EUROPE 13762/3):
(1) All Bank of Russia assets immobilised in the EU should be included in the Reparations Loan.
According to another European source, apart from the assets located at Euroclear, other assets totalling €25 billion are immobilised “in France, also in Belgium, and for smaller amounts in Germany, Sweden and Cyprus”.
(2) The financial and legal burden will be shared between the Member States “in a fair way, as it is the European way”, guaranteed Ms von der Leyen.
The Commission’s proposal calls for Member States to provide public guarantees of up to €210 billion in two stages. A first instalment equivalent to €105 billion would be provided when the loan is set up and the second in 2028, unless the post-2027 MFF assumes this responsibility.
There is also a mechanism to guarantee the rapid and massive provision of liquidity to central securities depositories, such as Euroclear, and to financial institutions holding immobilised Russian assets, in the event of difficulties. If the Member States do not want to do so directly, they could even turn to the Commission to provide an advance, whereas the ECB has refused to act as lender of last resort.
However, Mr Dombrovskis considered it “unlikely” that the EU would have to provide massive liquidity to entities holding Russian public assets or that a Member State would have to comply with a Russian request for compensation.
As such, provisions in the European sanctions regime prohibit anyone in the EU from asserting Russian claims against a Member State (‘no claim clause’). In addition, the Commission is proposing to strengthen the system: - by dissuading any entity facilitating the enforcement of claims on behalf of Russia inside and outside the EU; - allowing the recovery of damages in the event of the recovery of non-sovereign assets of a Member State outside the EU.
Above all, the Commission has proposed, on the basis of an article of the TFEU Treaty authorising emergency aid to a Member State faced with “exceptional occurrences beyond its control” (article 122.1), to prohibit the transfer of frozen Russian assets to Russia. This new regulation is justified by economic circumstances. It does not replace the sanctions regime against Russia adopted as part of the EU’s external action.
(3) The Europeans will urge their Western partners to set up a similar financial arrangement if Russian assets are immobilised on EU territory or participate in an EU arrangement.
According to the first source, “the United Kingdom and Canada” have expressed an interest in taking parallel action.
Belgium is not convinced at this stage
On Wednesday, the Belgian government did not seem convinced by the European Commission’s announcements.
On his arrival at the ministerial meeting at NATO, the head of Belgian diplomacy, Maxime Prévot, expressed a “frustrating feeling of not having been heard”. He said that the proposed ‘Reparations Loan’ “does not satisfactorily address our concerns” and “is clearly not a preferred option”. However, added the minister, “if the Member States want to go down this route, we demand that the risks Belgium faces as a result of this scheme are fully covered”.
At the Council of the EU, the Danish Presidency immediately began work at the level of the Member States’ ambassadors to the EU (Coreper), promising to work twice as hard to reach a decision at the European Council on 18 and 19 December. On Thursday, it will bring together the national delegations in small groups at technical level to gather their initial reactions and analyse the legislative texts, before a second discussion in Coreper on Friday.
To see the proposal to introduce a ‘Reparations Loan’: https://aeur.eu/f/jtq
To see the proposal banning the transfer of Bank of Russia assets to Russia: https://aeur.eu/f/jtr (Original version in French by Mathieu Bion with Camille-Cerise Gessant)