Of Gregorio Sorgi and Zoya Sheftalovich
The countries are deeply divided over whether frozen Russian assets should be used to shore up Kiev's battered finances.
Just hours before the 27 leaders gather in Brussels, two rival camps are clashing over whether to issue a loan to Ukraine based on the Russian central bank's frozen reserves, which are largely held at the Euroclear bank in Belgium. | Carl Court/Getty Images
BRUSSELS — Diplomats are working on a difficult, last-minute compromise to salvage a deal to send vital financial aid to Ukraine ahead of a high-stakes summit of EU leaders on Thursday.
On Wednesday night, European leaders were divided — at least publicly — into irreconcilable camps and seemed unlikely to reach an agreement on how to finance Kiev, in part because of the resurgence of the same bitter North-South divisions over shared debt that had undermined EU unity during the eurozone crisis.
Just hours before the 27 leaders gather in Brussels, two rival groups are clashing over whether to grant Ukraine a loan based on the Russian central bank's frozen reserves, which are largely held at the Euroclear bank in Belgium.
Germany, along with Scandinavian and Eastern European countries, argue that there is no alternative to this plan.
However, they are facing growing resistance from Belgium and Italy, which are promoting a “Plan B”: support for Kiev through EU debt guaranteed by the Union’s common budget. Bulgaria, Malta, Hungary and Slovakia also oppose the use of the assets.
In a typical illustration of the rift, Italian Prime Minister Giorgia Meloni said on Wednesday she would use the Council meeting to demand answers about the “potential risks” of using the assets, while German Chancellor Friedrich Merz insisted on the plan to use them “to contribute to ending this war as soon as possible.”
Escape plan
The first outlines of a possible way out of the impasse—which will have to be shaped through hours of negotiations—are beginning to emerge.
European Commission President Ursula von der Leyen cautiously opened the door to common debt on Wednesday morning, during a speech to the European Parliament in Strasbourg.
“I proposed two different options for the upcoming European Council, one based on EU assets and one based on EU borrowing. And we will have to decide which path we want to follow,” he said.
Key to such a plan would be to exclude Hungary and Slovakia — both of which oppose further aid to Ukraine — from the common debt scheme, four EU diplomats told POLITICO. A deal could be approved in the Council by all 27 EU member states, but the final arrangement would see only 25 countries participate in the financing.
Reaching such an agreement would provide a critical economic lifeline to Ukraine's battered public finances, as its coffers are at risk of drying up as early as next April.
Hungary's Viktor Orban is already predicting that frozen assets will not be discussed in Brussels and that negotiations have shifted towards joint loans. Many diplomats, however, have argued that Orban is wrong and that Russian assets remain "the only realistic option."
Zero hour
Despite growing political pressure on the EU to prove it can meet the existential challenges facing Ukraine, diplomats from opposing camps appeared on Wednesday often skeptical about whether a compromise can be found.
The idea of common EU debt has for years been a red flag for Northern member states, which are unwilling to guarantee bonds for Southern countries with high public debt.
“The situations that come closest to what is happening now with frozen assets are the financial crisis of 2012-2013 and the bailout of Greece in 2015,” said a senior EU diplomat, who — like the others quoted in the report — requested anonymity in order to speak freely.
Regarding the war in Ukraine, the Northern countries deny that they oppose the use of Eurobonds due to concerns about the solvency of other EU member states, but they argue that they prefer the asset solution because it would offer Ukraine a larger and longer-term inflow of liquidity.
“This is not about ‘frugal’ and ‘spender’. It’s about whether you are pro-Ukraine or not,” said a second EU diplomat, adding that Northern and Eastern European countries have led the way in financing Ukraine’s war needs over the past four years.
Support in Belgium
Despite weeks of arduous negotiations over the assets, efforts to persuade Belgium are failing. The country is adamantly opposed to the use of Russian money held at Euroclear in Brussels and has now attracted allies.
“[The Commission] created a monster and now the monster is devouring it,” said a third EU diplomat, referring to the asset recovery plan.
Germany and its allies, however, warn that there is still no alternative to targeting Euroclear's money.
“If you want to do something collectively as Europeans, the reparations loan is the only way,” said a fourth EU diplomat.
The idea behind the asset-based loan is that Kiev will not have to repay it unless Moscow pays the billions in compensation required to rebuild the razed Ukrainian cities — an extremely unlikely scenario.
Belgian Prime Minister Bart de Wever is expected to press the Commission, at a summit of EU leaders on Thursday, to consider the joint debt solution, in the hope that others around the table will adopt his demands.
Its supporters argue that this model “is cheaper and offers greater clarity,” according to a fifth EU diplomat.
Critics, however, point out that it would also require the political approval of Hungary's pro-Russian Prime Minister Viktor Orban — who has repeatedly threatened to blow up any further financial aid to Kiev.
According to the four EU diplomats, the impasse would require the Commission to devise a workaround to keep Ukraine financially afloat while allowing Orban to “save face.” In exchange for his support, the Commission could exempt Hungarian and Slovak taxpayers from the cost of financing Ukraine’s defense.
“The Commission is now promoting joint loans, but we will not let our families foot the bill for the Ukraine war,” Orbán wrote in X on Wednesday afternoon. He added that “Russian assets will not be on the table at tomorrow’s EUCO [European Council].”
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photo: NoName_13, https://pixabay.com
