EU has ‘no final idea’ on how to reconcile twin Ukraine loan schemes

Brussels hasn’t yet determined how to provide a planned €185 billion “reparation loan” to Ukraine using immobilised Russian sovereign assets, whilst simultaneously financing a separate €45 billion scheme to Kyiv devised by the G7, a senior European Commission official said on Monday.

The remarks come amid a growing a push by the EU executive to “mobilise” hundreds of billions of frozen Russian central bank assets held in the European Union to fund Kyiv’s colossal budget needs and war effort.

Profits generated by the Kremlin’s sovereign assets – which were frozen shortly after Moscow’s full-scale invasion of Ukraine in February 2022 – are currently being used to fund a so-called Extraordinary Revenue Acceleration (ERA) loan. The scheme was announced last year by the G7 group of rich democracies, which includes the EU as well as Germany, France, and Italy.

Asked how the reparation loan could go ahead without sacrificing the profits generated by the frozen assets required under the ERA scheme, the EU official said: “We have no final idea on how to solve that.”

The official added that “technically the easiest” way to reconcile the ERA and reparation loan schemes would be to use proceeds from the latter to repay the ERA debt – thus leaving €140 billion in the potential reparation loan cash pot.

EU member states have pledged to front-load €18 billion of ERA proceeds, with the remaining funds provided by the US, the UK, Canada, and Japan. So far, €14 billion of the EU funds have already been paid out, with the remaining €4 billion expected to be disbursed by the end of this year.

Roughly €210 billion in frozen Russian assets are held in the EU, which generate around €3 billion in annual profits that will ultimately be used to repay the ERA loan.

“The long and the short of it is that, for the time being, we say, ‘Look, let’s not allocate the full €185 billion’,” the official said.

“Just to be prudent, we know we need to do something on these ERA loans. There are different ways to go about, but let’s not raise expectations beyond the €140 billon in terms of new financing.”

According to the official, €175 billion of the assets have already matured into cash held by Euroclear, a Brussels-based clearing house, with another €10 billion expected to mature into cash in the coming years. Only the cash balances associated with the assets held by Euroclear will be used for the reparation loan.

Announced by Commission President Ursula von der Leyen last month, the reparation loan is strongly backed by Germany, France, and many eastern EU countries. But the plan is resisted by the European Central Bank and Belgium, which are concerned that the Commission’s plan could be tantamount to confiscation and trigger a mass exodus of investors’ capital from Europe.

The official, however, argued that EU member states’ stretched finances, Ukraine’s pressing funding needs, and Washington’s waning commitment to Kyiv and European security are making the implementation of the reparation loan increasingly urgent.

Ukraine faces a €52 billion budget gap for 2026 and 2027, according to the International Monetary Fund. Kyiv could also require up to €52 billion in additional annual funding after that, with a likely minimum of around €21 billion, the official said.

“Not providing support would in all likelihood lead to a collapse of Ukraine,” the official said, adding that this would present a “grave security risk” for the EU.

The reparation loan will be discussed by EU finance ministers in Luxembourg later this week and by EU leaders at a formal European Council summit in Brussels at the end of October.

(vib, aw)