The European Commission's proposal to use frozen Russian assets for a billion-euro loan to Ukraine addresses some of Belgium's concerns, but certainly not all of them, Flemish financial expert Veerle Colaert says. ‘There is still no full cover for the risks Belgium will be exposed to.’ As a result, Belgium remains opposed to the proposal, but there is a growing realisation that other EU member states will force it upon the country.
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Why isn’t the European Commission's plan to provide cash for Ukraine addressing Belgium's concerns?
Colin Clapson
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The European Commission on Wednesday proposed a bill to release €90 billion in aid to Ukraine. This can be done in two ways: either the European Union borrows money on the financial markets by issuing bonds, or it draws on Russian assets frozen in the EU. Most of the cash is held by securities depot Euroclear in Brussels, where some 185 billion euros of Russian monies are frozen.
The Belgian government is very concerned about this proposal and fears legal and financial consequences if Russia were to reclaim that money. Belgium is demanding ironclad guarantees that all EU member states will shoulder the burden if the cash has to be returned to Moscow. According to European Commission president Ursula von der Leyen, the Commission has addressed most of Belgium’s concerns in its proposal.
A number of concerns have been listened to, agrees financial expert Veerle Colaert of Leuven University, ‘but certainly not all of them’. ‘And the question is whether the fact that they were listened to has also led to an adequate solution’.
Bilateral guarantees
One of the guarantees that Belgium has obtained is that other EU member states will give ‘bilateral guarantees’ to Belgium. This means that a number of member states will make separate agreements with Belgium to guarantee part of the money that goes to Ukraine and which may be reclaimed by Russia at some time in the future. ‘If Belgium or Euroclear were to be asked to repay these funds to Russia, these bilateral guarantees would be invoked,’ explains Colaert.
Belgium having to repay the total amount by itslef would bankrupt the country as the bill would equal nearly half the country’s annual GDP.
The commission is offering a second guarantee and promises to borrow on the financial markets and reimburse Belgium.
Not all risks covered
However, there is still a great deal of uncertainty surrounding these guarantees, Colaert points out. Firstly, there is the question of whether these payments will be made immediately. ‘Belgium may still have to bridge the gap, because these guarantees cannot be invoked quickly.’
A second problem that may arise ‘is that, as they currently stand in the text, these guarantees only cover the amounts of the loan itself’. ‘But such a procedure involves a lot of other costs. There may be additional compensation, additional interest may be charged. And that is not covered by these guarantees. So I don't think there is full cover of all the risks Belgium is running.’
Furthermore, the Commission's additional guarantee must be unanimously approved by all member states. ‘That is a fairly cumbersome procedure and the question is whether it will be achieved.’
Colaert agrees with the Belgian government's position that this bill does not yet offer a full guarantee. It is also questionable whether enough member states will be willing to provide bilateral guarantees. The text of the bill states that the loan can only be granted to Ukraine if there are enough member states willing to provide these bilateral guarantees. The size of the loan will also depend on this. ‘If, let's say, only 80 billion euros in guarantees are provided, then only 80 billion can be lent.’
Borrowing money not a serious option
Colaert does not consider the second option, whereby the European Commission borrows money on the financial markets to support Ukraine, to be a serious proposal. It is only intended to show that the commission has explored all options. It is well known that the Commission prefers to use Russian assets.
Moreover, this second option also raises problems. ‘The first is that you have to pay interest if you borrow on the market. That is a significant cost.’ The second problem is that this ‘immediately creates a large debt’.
Belgium has back against the wall
Belgium is actually in a bit of a bind, Colaert concludes after reading the bill. She points out that, in the section on Russian assets, the commission has opted for a legal basis that does not require unanimity. ‘From a purely legal point of view, Belgium could actually be sidelined. I fear that, as things stand at present, there is a real chance that this will simply be imposed on Belgium.’
Colaert is also concerned about Europe's reputation on the financial markets. She criticises the commission for failing to address this issue. ‘If Euroclear is treated this way, it will have an impact on our financial markets. It sends a signal that assets held by Euroclear are not safe.’
Colaert fears that other countries, particularly China, may decide to withdraw their assets from Europe in response. China also has a lot of assets held by Euroclear. ‘These are investments in shares of European companies. This means that foreign powers will no longer be inclined to invest in European companies in the future, which could seriously damage our economic situation.’
Consultation at the highest level
Belgium’s federal government has already made it clear that the commission's new proposal still offers too few guarantees and that the risks still lie too much with Belgium alone. It cannot accept this, it says.
It is now up to the government to try to influence this dossier as much as possible in the coming weeks, explains VRT political journalist Bart Verhulst. A European summit will be held in Brussels on 18 December. The commission expects the EU member states to take a decision during that summit.
‘There will be consultations at the highest level,’ Verhulst explains, possibly between Belgian prime minister De Wever (Flemish nationalist) and commission president Von der Leyen. De Wever indicates that Belgium is certainly not alone and does indeed receive support from other countries, says Verhulst, but that these countries are now keeping quiet.
‘This is a very unpleasant issue for Belgium and the realisation is sinking in that we are not going to achieve our wishes,’ Verhulst notes. He points out that the government is now mainly aiming to make it as clear as possible that Belgium does not want this, so that it can be used as a legal argument at a later date: we never wanted this. ‘Whether that will be accepted in court is another matter.’
Colaert sees another possibility for Belgium. The commission is using Article 122 of the EU Treaty as the legal basis for the use of Russian assets. This article is intended for economic necessity. ‘The question is whether that applies here, because that article is actually intended to address economic problems in the EU.’
This is not the first time that the commission has invoked Article 122, and it has been criticised for doing so on several occasions in the past. 'The EU is increasingly resorting to this article to take measures that member states do not agree with. Belgium could argue that there is no correct legal basis. If later annulled, it could undermine the entire system. And then it would really start to get messy.'