President of the European Commission Ursula Von der Leyen proposed three different financial investment schemes that could address the pivotal requirements of Ukraine over the next couple of years. This move comes after pressure mounted on the European Commission due to various calls made by countries that form the European community with the intent of developing financing strategies that could sustainably support Ukraine’s requirements.
Frozen Russian assets emerge as the favored financing option
EU ministers of finance believe that the most efficient option out of the three proposed funding options for Ukraine could come through the distribution of frozen Russian funds. Danish Economy Minister Stephanie Lose reiterated that the proposed initiative of the Commission should be made an absolute priority due to its widespread backing across the EU countries.
The frozen assets option will involve replacing Russian funds with zero-coupon bonds with an AAA rating that will give the European Commission its funds back. This arrangement would give the government of Ukraine sufficient funds, with the only requirement of the loan being repaid if the Russian government ends up paying war reparations. This makes the loan a grant that Ukraine sorely needs.
“It’s the only option that offers sufficient military power whilst minimizing burden on the Finnish state budget,” emphasized the Minister of Finance of Finland, Riikka Purra. This clearly denotes the attractiveness of this option among the EU governments.
Alternative funding pathways offer flexibility for member states
Two more financing schemes aside from the frozen assets approach were proposed by Von der Leyen. This gives the EU’s member states various choices on how they can fund Ukraine’s projected requirements during the years 2026 and 2027. The second option entails common debt or eurobonds that enable the EU countries to jointly borrow based on the guarantee of their collective budget, to finance their programs of aid to Ukraine.
The third alternative involves an intergovernmental agreement that will enable individual countries with different financial capacities and constraints to contribute the required funds on their own. This method will enable each of the countries represented at the EU to contribute funds and offer grants to Ukraine on their individual terms, to the extent of reconstruction and protection that needs to take place.
Commission urges December agreement on broad Ukraine aid package
Belgium, home to Euroclear, is the center of Russian assets that remain frozen; therefore, the government of this state has raised some reservations regarding the potential legal and financial implications that may result from the use of these funds. This country requires that other EU Member States take responsibility for the dangers that may come with Russian litigation. The Commission’s proposal will give Ukraine financing of up to €140 billion over the next two years.
The European Commission seeks the leaders of the EU’s approval on the favored frozen assets mechanism later this December after negotiations with the Belgian government on its particular issues regarding liability and distribution of the risks. Von der Leyen reiterated the point that the time is ripe for new drivers on the coordinates of the cynical tactics of President Putin, who promotes time-buying and forces the negotiating table.
The three-track financing approach proposed by Von der Leyen promotes the EU’s firm commitment to continued strong financial aid to Ukraine. At the same time, this approach meets the different interests of the EU countries with respect to financial accountability and the capital at risk linked with penalized Russian assets. A success at the end of the December meeting of the EU ministers of foreign affairs depends on the settlement of the problem of the Belgian government with the proposed new approach to penalize Russian assets.