EU’s Ukraine loan may have been Plan B, but don’t underestimate its significance to the bloc
This €90bn agreement won out over a plan to use frozen Russian assets, but has been hailed a ‘huge deal for the EU’
The EU’s failure to agree a “reparations loan” to Ukraine backed by frozen Russian assets was a political blow to the bloc’s big beasts, but the last-gasp alternative it devised will do the job – and marks a potentially significant first.
After a marathon 16 hours of talks, EU leaders early on Friday agreed to fund Ukraine, which risked running out of money by next April, with a much-needed €90bn (£79bn) loan. But the solution they came up with was not the one most had wanted.
More than two months ago, the European Commission floated a plan to provide a loan to Kyiv secured against some of the €210bn of Russian central bank assets frozen in Europe, most of which are held at the Euroclear clearing house in Belgium.
The idea was for the EU to borrow from Euroclear in order to lend to Ukraine. Russia would remain the legal owner of the assets, and Kyiv would repay the loan using Russian reparations after the war, with the EU then reimbursing Euroclear.
It looked neat, it was – EU lawyers argued – legally watertight, and appealed for two main reasons: it involved no new common borrowing, and there was a certain moral satisfaction in seeing Russian money help Ukraine fight off Russian aggression.
There was an obstacle, however. The Belgian prime minister, Bart De Wever, argued that Moscow, which saw the plan as theft, would retaliate, and that courts in Russia-friendly jurisdictions, such as China, could order Belgian assets to be seized.
For weeks, De Wever held out, resisting heavy pressure in particular from the commission chief, Ursula von der Leyen, and her compatriot Friedrich Merz, the German chancellor, for whom the “reparations loan” was Plan A, with no Plan B.
The alternative – joint borrowing – may have appealed to some southern EU countries but was strongly opposed by Berlin and its frugal northern European allies, who did not fancy underwriting more debt for already overburdened fellow member states.
Up until the start of Thursday’s EU summit, leaders and diplomats were convinced De Wever – whose popularity has soared at home – would cave. Instead, he demanded unlimited cash support from every EU member in the event of any Russian claim.
That was too much. And so, backed principally by Italy’s Giorgia Meloni but also increasingly by the French president, Emmanuel Macron, Plan B – using unallocated funds in the EU budget as collateral for a collective loan for Ukraine – won the day.
Objections that a eurobonds alternative required unanimity were overcome, in a historic and potentially far-reaching move, by securing the backing of Eurosceptic Hungary, Slovakia and the Czech Republic in exchange for exemption.
The result was first and foremost hugely important for Ukraine, which will also get its much-needed cash sooner than under Plan A. It was a political loss for von der Leyen and Merz – although the German chancellor expressed delight with the deal.
It was a victory for a jubilant De Wever, who said “rationality has prevailed” and “the voice of small and medium-sized member states counts”, and good news for Eurosceptic prime ministers Viktor Orbán, Andrej Babiš and Robert Fico.
They can go home and boast to their populist bases that the taxpayers of, respectively, Hungary, the Czech Republic and Slovakia will not be asked to stump up anything for Ukraine’s defence.
Friday’s deal once again laid bare the deep divisions that so often hobble the EU’s decision-making, and underlined how far it still has to go to create a fully united Europe that can can act effectively and decisively in a hostile world.
But the bloc did manage to pull together an agreement for an existentially important end. It may even, analysts suggested, have found a new path forward. This was a “huge deal for EU”, said Guntram Wolff, of the Bruegel economic thinktank.
“If you want to do EU foreign policy, you need EU resources and debt. The European Council delivered,” he said, adding that the summit also marked, significantly, the first time that a decision on new EU debt had been reached without unanimity.
Alberto Alemanno, a professor of EU law, agreed the deal was “unprecedented”. Allowing willing states to move forward had never before been tried for “EU budget-backed borrowing, with selective participation in collective liability”, he said.
“Debt without unanimity … Is that the long-term direction for common European resources?” asked Jeremy Cliffe, of the European Council on Foreign Relations. If it is, Thursday’s summit could go down as something of a landmark.