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EU Leaders Block Loan to Ukraine Using Frozen Russian Assets
EU leaders failed to reach an agreement on a €140 billion loan to Ukraine, utilizing approximately €190 billion in frozen Russian state assets, during a meeting in Brussels on Thursday, December 14, 2023. The impasse stems from concerns raised by Belgium regarding potential legal and financial repercussions from Russia should the plan proceed. This setback dashes Ukraine’s hopes of receiving crucial funding at the start of 2024 to bolster its defense against ongoing Russian aggression.
The Proposed “Reparations Loan”
The proposal centered around using revenue generated from the frozen Russian assets - held largely at Euroclear, a Brussels-based central securities depository – to provide a “reparations loan” to Ukraine. This concept gained traction as efforts to resolve the conflict in Ukraine stalled and concerns grew over diminishing US support. According to a Financial Times report, the plan aimed to provide Ukraine with a stable funding source while holding Russia accountable for the damages caused by the war.
The initial proposal envisioned a loan structure where Ukraine would receive funds based on the interest earned from the frozen assets. This approach was intended to avoid directly confiscating the assets themselves, potentially mitigating legal challenges.However, the plan required assurances that Euroclear, and by extension Belgium, would not bear the financial burden of any potential russian retaliation.
Belgium’s Concerns and the Impasse
Belgium’s opposition proved decisive. The country, hosting the majority of the frozen Russian assets at Euroclear, demanded “cast-iron guarantees” against financial repercussions. As reported by Reuters,Belgian officials fear Russia could pursue legal action or retaliatory financial measures targeting Euroclear if the assets were used to fund Ukraine.
While 26 EU member states - Hungary abstained – supported the principle of using the frozen assets, Belgium’s insistence on comprehensive safeguards stalled the agreement. The lack of consensus highlights the complex legal and political challenges surrounding the use of frozen assets for reparations or reconstruction.
Financial Implications for Ukraine
The delay in securing the €140 billion loan creates significant financial uncertainty for Ukraine. The country is heavily reliant on external funding from allies to cover its budget deficit, estimated at around $42 billion for 2024, as detailed in a report from the International Monetary Fund (IMF). Without a guaranteed funding source, ukraine may face difficulties in maintaining essential government services, paying pensions, and continuing its military defense.
| Year | Estimated External Financing Needs (USD Billions) |
|---|---|
| 2023 | $42.5 |
| 2024 | $42.0 |
| 2025 |
