EU holds make-or-break summit to secure Ukraine defence funding

The leaders from European Union’s (EU) 27 member-states gathered in Brussels on Thursday for a high-stakes summit aimed at funding Ukraine’s war effort and reconstruction for the next two years. But a breakthrough remains elusive as both proposed solutions are mired in political and legal obstacles.

The EU plans to provide €90 billion to Ukraine out of the estimated €135 billion in foreign assistance that the war-torn nation needs for defence and reconstruction. But member states are deeply divided on how to raise the money.

Despite the challenges, EU chief Ursula von der Leyen vowed that the European Council —the body of EU heads of state and government— would not leave without a solution. Officials warn the summit could stretch for days given the stakes.

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In a first, Ukraine pulls off attack on Russian submarine Europe’s $246 bn question: Should frozen Russian assets be used to fund Ukraine’s war?

Why is Ukraine aid stuck?

Two main options are on the table, but neither has consensus.

In the first option, frozen Russian assets will be used as collateral to finance the loan to Ukraine.

The EU has proposed using frozen Russian central bank assets to back a ‘reparations loan’ for Ukraine. Under this plan, Ukraine would only repay if Russia pays reparations. Since the scenario seen as highly unlikely, the plan effectively turns the loan into a grant.

Supporters hail the idea to use Russia’s own resources to help Ukraine as groundbreaking. But Belgium, which hosts about 70 per cent of these frozen assets, has blocked the move by arguing that concentrating liability in one country could trigger a financial crisis if Russia wins a legal challenge in an international court.

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In the second option, the EU would issue common debt to finance the loan.

Belgium and several southern states suggest issuing joint EU debt, backed by the EU budget, to spread risk across all members. This approach mirrors the Covid-19 pandemic-era recovery fund and would ensure equal liability sharing.

However, the plan requires unanimous approval and Hungary, a close ally of Russia, has flatly refused. A workaround under discussion would exclude Hungary —and possibly Slovakia, another country friendly to Russia— from the scheme, allowing 25 states to go ahead with the scheme, according to Politico.

Can Belgium be persuaded?

In a bid to sway Belgium, German Chancellor Friedrich Merz joined von der Leyen for crunch talks with Belgian Prime Minister Bart De Wever on Wednesday, according to Euronews.

This is the second time Merz, Von der Leyen, and De Wever have held their trilateral meeting after Merz flew to Brussels on December 5 to make the case for using frozen Russian assets to fund Ukraine's needs — Merz is among the foremost champions of the plan.

De Wever has, however, maintained that he will not give up his objection to the scheme and would not agree to any scheme that threatens “the financial security of Europe and Belgium”. He said that it would be a “shame” if the loan was somehow approved despite Belgium’s objection.

But De Wever said that he was open to “compromises” that would see risks and liabilities distributed among the bloc’s members.

“I haven’t seen any text yet that would persuade me to change Belgium’s position. I hope to see it today, but so far, it hasn’t arrived,” said De Wever, according to Euronews.

But if the loan would be “completely mutualised and sealed off for our country, then we’ll jump into the abyss along with all the Europeans and hope the parachute will hold us”, De Wever said.