The EU is pushing a plan to provide Ukraine with "compensation loans" using frozen Russian assets, official says this is a viable path forward

The EU is advancing a plan to provide loans to Ukraine using the assets of the Russian Central Bank that have been frozen, aiming to meet Ukraine's growing funding needs amid the ongoing war lasting over three and a half years.

On Saturday, at a two-day meeting of the group's finance ministers in Copenhagen, EU Commissioner for Economic Affairs and Productivity Dombrovskis stated, "There is a willingness to engage constructively on (so-called) 'compensation loans'." During the meeting, the European Commission outlined the plan.

Dombrovskis added, "Member states see this as a feasible path forward, and we need to be relatively quickly prepared." As the war continues, leading to increased funding demands from Ukraine, the EU and its allies are seeking financing avenues.

The International Monetary Fund will provide an estimate in the coming weeks, and once it becomes clear that the US and other G7 members may participate in the aid, this will help determine the scale of the EU's financial assistance to Ukraine.

The European Commission is advancing a proposal under which the frozen Russian Central Bank assets will not be seized - one of the main concerns of the Brussels-based clearing house Euroclear, which holds the frozen assets, and the European Central Bank, which holds the cash balances from the matured assets.

According to sources, these cash balances will be replaced by bonds to ensure Russia retains legal claims on these assets. Subsequently, these cash balances will be provided to Ukraine in the form of various loans, which Ukraine will not have to repay if Russia fails to rectify the damage caused during the war.

The matured assets have generated about 17.5 billion euros in cash. One source mentioned that another aid program provided by the G7 for Ukraine is utilizing approximately 4.5 billion euros, leaving about 13 billion euros in available funds.

One of the most sensitive elements, and key to ensuring the mechanism's legal robustness, is the guarantee measures that EU member states will provide. One of the considered options is to provide guarantees bilaterally to avoid potential rejection of the mechanism by member states like Hungary, which has been slow in supporting Ukraine.

Additionally, Dombrovskis proposed that the mechanism should be scalable to include other G7 countries. The Russian Central Bank has about 30 billion dollars in assets frozen in G7 countries, mostly in Europe.

A government official noted that such guarantees require approval from national parliaments. The details of the proposal are still being developed. The European Commission is developing the plan in parallel with negotiations with G7 allies, Ukraine, and the International Monetary Fund.

Utilizing frozen assets could help pressure Russian President Putin to end the war through negotiations. To further pressure Putin, the European Commission proposed this week to ban the import of Russian liquefied natural gas into the EU before January 1, 2027, a year earlier than originally planned.

The final amount of aid provided by the EU and its allies will depend on Ukraine's financial situation. Ukraine's Finance Minister Marchenko said on Friday that the country's funding gap will reach 18.1 billion dollars in 2026.

Dombrovskis emphasized on Friday, "We are not proposing to seize Russian sovereign assets; we are proposing that Russia continue to retain the right to claim these assets, but we will use the accumulated cash balances."

Given the sensitivity and complexity of the issue, ECB President Lagarde, who spoke alongside Dombrovskis on Friday, stated she hopes to see a written proposal. Lagarde added, "I am not the only one."

Due to the potential impact of utilizing frozen Russian central bank assets on the eurozone's status and financial stability, the EU has been cautious about these assets. Despite this, given the delicate situation in Ukraine and the limited fiscal resources available at the national level to assist Ukraine, EU member states are still willing to advance the proposal.

German Vice Chancellor and Finance Minister Klinsbeil stated, "We are ready to discuss this, and we hope to fulfill our responsibility to Ukraine," and pointed out, "Everything must be carefully reviewed."

Original: www.toutiao.com/article/1843828341092356/

Statement: This article represents the views of the author.