EU’s crucial week on Ukraine funding starts, while Russian asset talks get tougher

Brussels – A “break or take” week, the head of EU diplomacy, Kaja Kallas, has defined it. The stakes are very high: it is not only a question of guaranteeing the necessary resources so that Ukraine does not capitulate one step away from peace negotiations, but ultimately of the very credibility of the European Union, which has so many times promised to support Kyiv at any cost but which now risks falling apart in the face of the colossal figure of 90 billion euros for the next two years. 

The road to the European summit scheduled for 18 and 19 December, however, is uphill, the EU High Representative for Foreign Affairs admitted. The optimism flaunted after the decision to freeze assets indefinitely seems to have waned. Negotiations on Brussels’ preferred option, reparation loans to Ukraine with Russian Central Bank assets frozen in the EU, “are increasingly difficult.” In addition to Belgium, home of Euroclear, the company that holds most of the Russian government bonds on European soil, Italy, Bulgaria, Malta, and the Czech Republic have pulled out. Together with Hungary and Slovakia, Moscow’s Trojan horses in the EU, a handful of countries could upend the talks.

 “We will not leave the summit before we get a result, before we make a decision on financing for Ukraine,” Kallas promises (or warns) the leaders. The stance of the European Commission, however, is unquivocal: “The most credible option is the reparation loan, and that is what we are working on.” Today (15 December), the foreign ministers of the 27 member states are meeting in Brussels, starting a diplomatic whirlwind that will not stop until the last Friday before the holidays. Belgium, Italy, Bulgaria, and Malta have signed a declaration calling for alternative solutions, such as a joint debt instrument or bridging finance. Belgium runs a huge financial risk – the 185 billion euros held by Euroclear are equal to almost a third of the country’s GDP. Italy, along with Bulgaria and Malta, is concerned about the burden of loan guarantees on its massive debt.

Kallas asked the 27 to be “very lucid.” The alternative – that of a loan financed by the EU budget – “does not work; we have tried it before.” When, two years ago, Kallas herself, then premier of Estonia, tried to push for Eurobonds to support Ukraine, the discussion quickly collapsed. The room for unanimity on a common debt instrument is almost non-existent. Whereas the green light for a loan with frozen Russian assets can be obtained with a qualified majority vote. And moreover, Kallas emphasised, “it does not come from our taxpayers’ money”. 

The qualified majority criterion gives the Commission a significant margin to impose its will. Italy, Belgium, Bulgaria, Malta, the Czech Republic, Hungary, and Slovakia are insufficient to block the repair loan. Even with Luxembourg joining as another skeptic, the outcome of the vote would remain unchanged. Yet, Kallas pointed out, without Belgium on board, “it would always be more difficult, because they hold most of the assets, and I think it is important that they are involved in whatever we do.” In general, an agreement of 20 that relies on financial security to be guaranteed to 27 would be very fragile. 

After the Russian Central Bank’s first legal action against Euroclear, alarm bells went off in some chancelleries. “Of course, some countries in Europe are more used to the threats posed by Russia than others. And I want to tell you that these are only threats: if we stand united, we are much stronger,” the High Representative insisted. Perhaps, however, another doubt is emerging among the capitals: namely, that Russia might lose the war, or be forced to compensate Ukraine in a peace agreement from whose negotiations, so far, the EU has been sidelined.