Brussels: A European Commission plan to finance a substantial loan to Ukraine is facing significant headwinds, with opposition emerging over the proposed funding mechanism. The plan, which seeks to utilize frozen Russian assets, has triggered concerns about its legality and potential economic repercussions within the European Union.
The European Central Bank (ECB) has reportedly voiced strong reservations regarding the Commission’s proposal to leverage frozen Russian assets as collateral for a €140 billion (approximately $162 billion) loan. Sources familiar with the matter suggest that the ECB’s analysis concluded that the plan could be construed as direct support for government obligations, potentially violating the EU’s treaty obligations prohibiting monetary financing.
Concerns over Monetary Financing
The ECB’s primary concern revolves around the potential for the proposed mechanism to be interpreted as ‘monetary financing,’ a practice strictly forbidden under EU treaties due to its potential to fuel inflation and erode confidence in monetary policy. The Commission had reportedly explored the possibility of the ECB acting as a ‘lender of last resort’ to Euroclear, the Belgian institution holding a significant portion of the frozen Russian assets, but this option was deemed unviable.
Commission officials have cautioned that member states might struggle to mobilize funds rapidly in the event of an emergency, potentially creating financial strain on markets. However, the ECB has maintained its stance, emphasizing that any arrangement that could be perceived as monetary financing is off the table.
With the ECB’s opposition posing a significant challenge, the European Commission is now reportedly exploring alternative options to provide the necessary liquidity to support the massive loan. The Commission acknowledges ongoing discussions with the ECB regarding the proposed loan and insists the ECB is actively taking part in finding a compromise.
The unfolding situation highlights the deep divisions within the EU regarding the utilization of frozen Russian assets and underscores the challenges of balancing financial stability with the urgent need to support Ukraine. The search for a viable funding mechanism continues.
