Belgium sets red lines on proposed €140bn loan for Ukraine

Belgium has set out its red lines regarding the use of Russian assets to finance a €140 billion reparations loan for Ukraine, including an agreement that EU countries must share all current and future risks linked to the plan, amounting to more than €170 billion.

Source: Politico, a Brussels-based politics and policy news organisation

Quote from Politico: "EU capitals are racing to quell Belgium's concerns around the loan ahead of a crucial summit of EU leaders on 23 October. Securing a political agreement at the summit would pave the way for the bloc to put forward a legal proposal shortly after."

Details: Among the 27 EU member states, Belgium has the greatest stake in the matter, as the financial depository Euroclear – which holds the bulk of Russia's state assets frozen after the country's full-scale invasion of Ukraine in February 2022 – is based on its territory.

The Belgian government fears it could be held liable for any legal or financial claims filed by Russia and therefore insists that all EU countries provide guarantees for the loan, which would effectively mean using taxpayers' money to cover any potential costs.

Quote from Belgian Prime Minister Bart De Wever at an informal European Council meeting in Copenhagen last week: "These guarantees cannot be limited to the €170 billion in cash that the Commission proposes to mobilise. The potential exposure could be much higher than the nominal amount."

Details: De Wever added another condition: "The guarantees do not automatically end when sanctions are lifted. Arbitration procedures could still emerge years later."

Overall, Belgium has set out a detailed list of red lines. Among them are the refusal to support any measures that could be interpreted as confiscation of assets; a legal commitment with clear guarantees that EU countries will share all current and future risks for both Euroclear and Belgium; and an agreement for immediate financial compensation if Euroclear is ever required to return the assets to Russia, for instance following a peace agreement.

In his statement to EU leaders, De Wever argued that the Commission's plan effectively constitutes confiscation, contradicting the Commission's claim that its loan proposal does not entail the seizure of Russian state assets.

"The distinction between a reparation loan and confiscation is, in reality, extremely narrow. If these assets remain immobilised for an extended period, the arrangement could be seen as a quasi-confiscation," he said.

He also suggested that the Commission's plan might violate Belgium's and Luxembourg's bilateral investment treaties with Russia, which were signed at the end of the Cold War in 1989.

De Wever further argued that the operation could prompt, among others, Chinese investors to withdraw their deposits from Euroclear out of concern that their reserves might also be seized in the future.

According to a senior EU diplomat speaking on condition of anonymity, the Belgian prime minister's statement raised many complex questions that are still under consideration. However, the diplomat added that "the guarantees must be sound at the end of the day".

Background:

• The European Commission has proposed using €175 billion in cash generated from frozen Russian state assets invested in Western government bonds to finance a €140 billion reparations loan for Ukraine and to repay a previous G7 loan to Kyiv.
• At present, these funds are held on deposit at the European Central Bank under Euroclear's management.

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