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The European Commission is rushing to allay concerns raised by France and other countries wary of approving the use of Russia’s frozen assets for a €140bn loan to Ukraine, for fear it will add to their national debt burden.
Under the commission’s “reparations loan” proposal, Russian assets that have matured into cash at the central securities depository Euroclear would be used to issue the loan.
But the scheme would need to be covered by national guarantees from participating EU countries — with significant implications for highly indebted countries such as France. Neither the size nor the distribution of these guarantees have yet been agreed.
Paris wants to ensure the scheme complies with international law and that the underlying assets are not seized, that it “provides fair risk-sharing, and that it does not weigh on our public finances”, one French diplomat said.
Under the commission’s proposal, Russia would retain a claim to the assets, which it would only get back if it agreed to pay war reparations. This would allow Brussels to counter legal claims that it had seized Moscow’s assets.
In an attempt to convince Paris, which has long campaigned for a European preference in defence procurement, commission president Ursula von der Leyen said on Tuesday that she would ensure ‘’part of the loan is used for procurement in Europe and with Europe’‘.
“Ukraine will also need to make commitments to ensure that these funds are shielded from corruption and that they benefit, above all, EU industries,” the French diplomat added.
The loan would be disbursed in tranches, depending on Kyiv’s needs and subject to conditions, including anti-corruption efforts, the commission said.
Germany has recently U-turned on its long-held opposition to tapping Russia’s underlying assets, motivated by US disengagement and tight budgetary constraints, both domestically and in other EU countries.
Chancellor Friederich Merz argued in a Financial Times op-ed last week that such a move would amount to an “effective lever that will . . . bring [Russian President Vladimir Putin] to the negotiating table”.
Von der Leyen hopes to get backing from most EU leaders during a meeting in Copenhagen on Wednesday, but resistance from Paris and other capitals means that an agreement at this stage is unlikely. Merz has called for a final decision to be reached at a formal leaders’ summit later this month.
The commission is seeking reassurances from its statistics department that the national guarantees could be issued as contingent liabilities without accruing to countries’ debt burdens, one person familiar with the scheme said. But this is yet to be confirmed, and would still need to pass muster with markets.
“If rating agencies start adding it to your debt, and they downgrade you, it becomes very expensive very quickly,” one EU diplomat said.
Belgium, home to Euroclear, has also raised concerns, demanding full mutualisation of risks.
“Belgium will not accept any increase in its level of risk, and any guarantee given will have to be legally binding and enforceable,” a Belgian official said.
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Euroclear said that any additional risks for itself should be mitigated. Any agreement on the assets must avoid ‘‘undermining confidence in international financial markets by safeguarding the legal order and legal certainty, which underpin global economies”, it said.
Merz said the loan should be used solely for weapons, while the commission suggested both military and budget support. Kyiv said spending must be flexible to adapt to its needs, one Ukrainian diplomat said.
Another measure likely to raise concerns in capitals is the commission’s plan to use a legal workaround to ensure that Russian assets stay frozen for the duration of the loan — instead of requiring that all 27 governments approve the extension of the sanctions every six months.
The plan would be to agree to extend sanctions by qualified majority by retroactively interpreting leaders’ commitments from past EU summits to keep Russian assets frozen until Moscow pays reparations.
The change, aimed at bypassing Hungarian Prime Minister Viktor Orbán’s repeated threats to undo the Russia sanctions, would need “a high-level political agreement by all or most” EU leaders, the commission wrote in a note seen by the Financial Times.
The move risks spooking other countries who may balk at the prospect of their veto powers being overridden in the future, officials said.
“We are not intending to use [this] frequently. This is exceptional,” a senior EU official said.
Additional reporting by Anne-Sylvaine Chassany in Berlin, Andy Bounds, Laura Dubois and Henry Foy in Brussels
