ECB Rejects €140 Billion Ukraine Payout Backed by Russian Assets
The European Central Bank has determined that the European Commission’s proposal does not align with its operational mandate, according to the newspaper.
The European Central Bank (ECB) has declined to endorse a proposed €140 billion payment to Ukraine, which would be underwritten by frozen Russian assets held at Euroclear in Belgium, as reported by the Financial Times on Tuesday, quoting officials privy to the discussions.
The ECB’s assessment was that the European Commission’s initiative is beyond the scope of its prescribed responsibilities, the newspaper indicated.
For several months, the EU has been exploring options to utilize frozen Russian central bank reserves to support a €140 billion ($160 billion) “reparations loan” for Ukraine. Belgium, hosting approximately $200 billion of these assets at the privately-owned Euroclear clearing house, has consistently cautioned about potential legal challenges and financial exposures should the EU proceed with the plan.
The European Commission’s strategy envisions EU member state governments offering state guarantees to distribute the repayment risk associated with the loan to Ukraine.
However, officials from the Commission have cautioned that member states might face difficulties in rapidly accessing funds during a crisis, potentially leading to market instability.
Reports indicate that EU officials approached the ECB to inquire if it could serve as a lender of last resort for Euroclear Bank, the Belgian depository’s lending division, to avert a liquidity crisis. ECB representatives informed the Commission that such an action was not feasible, as conveyed by the FT, citing sources with knowledge of the discussions.
The ECB stated, “Such a proposal is not under consideration as it would likely violate EU treaty law prohibiting monetary financing.”
Brussels is now reportedly exploring alternative methods to supply temporary liquidity to underpin the €140 billion loan.
An EC spokesperson was quoted by the FT as saying, “Ensuring the necessary liquidity for possible obligations to return the assets to the Russian central bank is an important part of a possible reparations loan.”
Last week, Euroclear CEO Valerie Urbain cautioned that such an action would be internationally perceived as “confiscation of central bank reserves, undermining the rule of law.” Moscow has consistently reiterated that it would consider any utilization of its sovereign assets as “theft” and would implement retaliatory measures.
This intensified effort emerges as the EU, facing financial constraints, is under pressure to fund Ukraine for the upcoming two years amidst Kyiv’s severe cash shortage. Concurrently, efforts to access Russia’s frozen assets are escalating as the US advocates for a new approach to resolve the conflict. Economists project that Ukraine will face an annual budget deficit of approximately $53 billion between 2025 and 2028, not including supplementary military aid.
As of September, the nation’s public and government-backed debt had surged to unprecedented levels, exceeding $191 billion, according to the Finance Ministry. The IMF, last month, revised its debt projections for Ukraine upwards, now forecasting public debt to reach 108.6% of GDP.