The European Commission is stepping up efforts to persuade Belgium to back a key 140 billion euro loan for Ukraine, financed by frozen Russian assets, as Kiev faces the risk of running out of funds in the spring, Politico reports.
Senior Commission officials will hold crucial talks with the Belgian government on Friday to allay Prime Minister Bart de Wever's concerns about the financial and legal risks of using frozen Russian assets held by Brussels-based Euroclear.
De Wever stands in the way of a planned EU megaloan that aims to give Kiev three years of financial breathing space. Ukraine is currently facing a budget deficit of about $60 billion over the next two years, not including the cost of maintaining the army.
A failure would force the bloc’s leaders to turn to their own finances to support Kiev’s defense against Russian forces — or risk letting Kiev fall into Moscow’s hands.
The commission’s task is to allay De Wever’s concerns that Belgium would be obligated to repay Moscow’s debt if the war ends or if Kremlin lawyers successfully sue his government over the use of frozen assets held by the Brussels-based financial depository Euroclear.
A source told Politico that talks at all levels, including the highest, would take place in the coming days.
But the talks come at a time when De Wever is facing political tensions at home. The parties in his government are in tense talks in an attempt to approve the country's budget and fulfill the coalition's promise to cut spending by 10 billion euros.
De Wever said on Thursday that he had asked Belgium's King Philippe to give the government until Christmas to reach a budget deal after missing several previous deadlines, and stressed that this was the government's last attempt to reach a budget agreement.
Once Belgium's concerns are met, the Commission will formally propose legislation on the reparations loan in the coming weeks, according to two officials familiar with the plans.
Two other EU officials familiar with the plans told Politico that the Parliament would also likely be involved in drafting the legislation. This could prolong the process and jeopardise the Commission’s hopes of receiving 140 billion euros before April, when Kiev is expected to run out of money.
Adding to the pressure is the fact that the International Monetary Fund’s continued support for Ukraine depends on the EU loan.
"The longer we delay things, the more challenging it will become," Economy Commissioner Valdis Dombrovskis told reporters in Sofia this week on the sidelines of a conference. "This could raise questions about some possible transitional solutions. So the sooner the better."
As a precautionary measure, the Belgians are demanding that EU governments provide national guarantees worth more than 170 billion euros against the loan, which can be repaid at notice. De Wever also wants guarantees that the use of the cash value of the Russian assets would also be legal.
The Commission's lawyers "have very carefully assessed any legal risks or possible litigation risks," which they consider to be "limited," Dombrovskis said in Sofia. He added that "in any case, the guarantees that will be provided to Belgium [are] to cover potential financial risks that Belgium could face" if Moscow's lawyers sue the government.
The aim is for the bloc to provide national guarantees for the loan "at least for the next two years, which could be covered by the EU guarantee" in 2028, when the next seven-year EU budget begins, Dombrovskis said.
The more difficult task is eliminating the threat of a veto on EU sanctions by Kremlin-friendly countries such as Hungary and Slovakia.
The commission is considering a "loophole" that would freeze Russian state assets until the war ends and reparations are paid to Ukraine. Otherwise, the EU must unanimously renew its sanctions against Russia every six months. Unfreezing Russian assets would force Euroclear to transfer all sanctioned funds back to the Kremlin.