European Commission for Russian assets is gambling with the financial stability of the whole Union, warns Belgium

German Chancellor Friedrich Merz and European Commission chief Ursula von der Leyen failed to win over Belgian Prime Minister Bart De Wever this week.

Friedrich Merz und Ursula von der Leyen. Foto: Yves Herman/Reuters

Friedrich Merz and Ursula von der Leyen. Photo: Yves Herman/Reuters

After Friday, Belgium remains resolutely opposed to the European Commission sending to Ukraine €140 billion of Russia's frozen foreign exchange reserves, which are deposited in the Brussels-based Euroclear depository, and another €25 billion seized by private banks in EU member states. Kiev could use the money to finance its war with Russia for the next two years.

The prime minister was backed by bankers

The Belgian prime minister was supported by his domestic bankers in his opposition to the loan. According to the Belgian banking federation Fabelfin, the European Commission's proposal poses "an unfathomable threat to the stability of Belgium as a country".

Moreover, if international investors fear that foreign assets held in Europe could be seized too easily, there will be an outflow of capital from Europe and an undermining of confidence in its financial markets, Fabelfin further warns.

In addition to bankers, the Federation of Belgian Businesses is also speaking out against the loan. The latter suggests that other EU countries are behaving hypocritically because, if Russian assets were frozen on their territory, they themselves would be unwilling to take the risk of doing what they are now asking Belgium to do.

In fact, frozen Russian foreign exchange reserves are also deposited in other EU countries, notably France and Luxembourg, but Belgium is sovereignly dominant in holding them. The Belgian company Euroclear, where they are deposited, is itself opposed to their use for a loan to Ukraine.

It said on Friday that the European Commission's proposal was too risky, untested by history, and that its materialisation would entail far-reaching legal, financial and reputational risks not only for Euroclear, but also for Belgium, the European Union and its financial markets.

The Germans in particular are pushing

In addition to the European Commission, Belgium is also under particular pressure from Germany. Berlin apparently prefers to use Russian reserves to finance Ukrainian military expenditure rather than to use common EU debt for the same purpose.

Indeed, the Germans are one of the EU nations that, with few exceptions, vehemently oppose the joint borrowing of Union money because, as relatively fiscally disciplined, they do not want to take on the cost of the debt of over-extended economies like France, Italy, or even Belgium. So Germany would prefer that Belgium send money to Ukraine from Russian reserves without having to issue more common EU debt.

However, there is also a real heavyweight on Belgium's side - the United States. It is now pressing some European Union countries to oppose the European Commission's intention to send money to Ukraine from Russian reserves, as Bloomberg reported. According to the US, the money from Russian reserves should be used to secure peace, not to prolong the war.

The European Commission wants to give Kiev the money - it is actually a non-repayable, interest-free loan - for its military and financial needs. However, the money is to be guaranteed by individual EU Member States.

Hungary is opposed. And, in fact, Slovakia

The European Central Bank refuses to participate in the guarantee, even though the European Commission is asking it to do so. In addition to Belgium, Hungary and, indeed, Slovakia are also opposed to the transfer of a total of EUR 165 billion to Ukraine within the EU, as they are making it conditional on the money not being used to finance military expenditure, which is difficult to achieve in practice.

The Belgian state budget collects hundreds of millions of euros in taxes from the frozen Russian foreign exchange reserves that are deposited on its territory. Belgium is particularly worried that if the relevant European Union sanctions cease to apply (for example, by the Hungarian veto in the vote to extend them for another six months, which takes place regularly every six months), it will be it that will have to return the money from the reserves to Russia - and if, in the meantime, the European Commission sends it to Ukraine, it will have nothing to draw on.

Belgium would then have to be "folded in" by other EU Member States to be able to return the money to Russia. Alternatively, the European Central Bank would 'print the money back to Russia out of thin air', but the European Central Bank rejects such a solution as an unauthorised fabrication of the debt of eurozone Member States by printing new euros.

The text was originally published on lukaskovanda.cz.