Europe is exploring creative ways to keep supporting Ukraine's defense efforts, especially as the U. S. signals a potential reduction in its financial aid. One idea gaining traction is the use of frozen Russian assets to create a loan for Ukraine. This loan wouldn't touch the actual money but would use it as collateral, with Ukraine only required to pay it back once Russia compensates for war damages.

The European Commission has proposed this plan, and it's set to be discussed by EU leaders and finance ministers soon. The idea is to transfer some or all of the frozen Russian assets, currently held in Euroclear, to a special fund. This fund would then issue bonds backed by guarantees from willing EU member states and possibly other G7 countries. The money from these bonds would be loaned to Ukraine over the next few years.

However, this plan isn't without its challenges. Some countries, like the Baltic states, want to confiscate the frozen assets outright, while others, particularly in Western Europe, are against this idea. They worry about potential legal repercussions and the impact on the euro's status as a global reserve currency. Additionally, some countries, like Hungary, have shown resistance to using EU funds for Ukraine, which could pose a problem for this new plan.

Another hurdle is the need for national guarantees. Not all EU countries may be willing to commit to this, especially with their own economic issues. Moreover, Euroclear might insist on full guarantees and even a role in managing the new loan structure. There's also the question of how much money would actually be available, with estimates suggesting around 140 billion euros for two years, depending on an IMF assessment.

Despite these challenges, the plan offers a way to provide Ukraine with much-needed funds without requiring immediate repayment. It also addresses the question of what to do with the frozen Russian assets and eases the pressure on the EU budget. However, it's far from a done deal, and several obstacles need to be overcome before it can become a reality.

UKRAINE WAR FUNDING

How Europe Plans to Fund Ukraine's War Effort

Continue reading...