The ECB refuses to cover the payment to Ukraine. Leyen's plan to use Russian assets gets complicated

According to the Financial Times, which cites several officials, the European Central Bank has concluded that the proposed guarantee scheme goes beyond the remit of the European Commission (EC).

Without the ECB's approval, the project for a reparation loan from frozen Russian assets is thus running into serious problems at an early stage.

According to the Commission's proposal, EU Member States were to provide state guarantees in order to share the risk of repaying the loan. However, EC officials have warned that individual governments would not be able to raise the necessary cash quickly in the event of a crisis, which could cause tensions on financial markets. They therefore asked the ECB if it could take on the role of collateral as lender of last resort.

However, the ECB informed the Commission that such a solution was not an option. Its internal assessment showed that it would essentially be providing direct funding to governments as it would be assuming their potential financial liabilities.

In view of the ECB's refusal, the Commission has started to prepare alternative solutions that would temporarily provide the necessary liquidity to cover the loan, the sources said.

Belgium is also putting the brakes on the EU plan

Belgian Prime Minister Bart De Wever, whose country is key - it is in Belgium that the Euroclear depository, where most of the frozen Russian assets are stored, has also spoken out against the proposal.

De Wever warned that the use of frozen Russian assets during the war could undermine the chances of reaching a peace deal, which he said was still being negotiated.

In a letter to European Commission President Ursula von der Leyen last week, he described the system of such loans as "fundamentally flawed" and recalled that, historically, frozen assets have only been used after a war and not during the duration of a conflict.

Belgium does not want to bear the risk alone and is demanding that other member states provide legally binding guarantees. However, the Union leaders have not yet agreed on such a guarantee, which is to be discussed at the December summit.

While some states are pushing for the rapid involvement of Russian assets in Kiev's financing, Slovakia and Hungary have announced that they will never support such a model. They argue the risk of corruption in Ukraine and fears of violating international law.

Euroclear warns of legal and financial risks

Euroclear itself, which manages some €185 billion of Russian assets frozen in Europe, has strong reservations. The depositary warns that the EU plan could be interpreted internationally as a "confiscation", which could lead to legal disputes, damage to the investment climate, retaliatory measures by Russia and higher sovereign borrowing costs for member states.

CEO Valérie Urbain stressed that without adequate guarantees, Euroclear could face serious financial consequences. Belgium therefore insists that the Union should protect the depositary against these risks both legally and financially.

(reuters, swag)