Why is Belgium opposed to using Russian assets to support Ukraine?

Over the next two years, the European Union has announced plans to use billions of euros in frozen Russian assets to pay for Ukraine’s need for war. Following the announcement on Wednesday, Belgium is reversing, claiming that it is exposed by legal and financial risks that it fears leaving alone.

According to Ursula von der Leyen, president of the European Commission, Brussels will provide 105 billion euros ($105 billion) of the estimated 137 billion euros ($159 billion) of Ukraine’s budgetary needs for 2026-27. The remainder would be covered by other “international partners,” according to her claim.

We are communicating to the Ukrainian people with a very clear message today. Von der Leyen stated that “we are with them for the long haul.”

A “reparations loan” intended to support Ukraine’s war effort and which Russia would ultimately pay back once it received compensation for the war from Russia would be used as collateral for a “reparations loan” intended to support it.

Although Belgians object, the majority of European officials have argued that using frozen Russian assets is preferable to be used for funding aid. The most contentious plan by the EU comes as Russia and Ukraine’s most recent round of US-led peace talks show little sign of progress.

The reparations loan plan has been referred to as “theft,” according to Moscow.

How is Ukraine going to be financed by the EU?

The European Union has given Ukraine more than 170 billion euros ($197bn) since Russia’s full-scale invasion of Ukraine in February 2022, primarily as military and humanitarian aid. The European Commission is now agreeing to provide additional funds in the form of loans for another two years.

Long-awaited details of the EU’s “reparations loan” plan were made public on Wednesday. Under the new agreement, a loan to Ukraine will use some 90 billion euros ($104 billion) of frozen Russian assets as collateral.

The current and future profits of the frozen assets will be used to guarantee repayment to creditors under a loan arrangement, including government and private lenders. Once Moscow makes up for the damage that its invasion caused, Ukraine would then pay back the loan.

According to Gregoire Roos, director of Chatham House’s programs for Europe, Russia, and Eurasia, “it’s quite a clever tactic.” They are not seized, the company claims. Instead of freezing them and stealing them, they are doing it.

According to Roos, “this is significant in Europe because assets have been frozen in previous conflicts… due to the scale.”

He claimed that there is no precedent for this.

Von der Leyen claimed that the funds would give Ukraine more leverage in peace negotiations and show Moscow that “the war is going on their side at a high price.” Washington was informed of the plan, she added.

Von der Leyen’s reparations-loan proposal may not receive the full support of the EU’s member states, but she made hints that the EU might resort to market borrowing. This would require the bloc’s unanimous consent, giving Hungary another chance to veto Ukraine aid.

Because of Prime Minister Viktor Orban’s government’s claim that arming Kyiv will prolong the conflict and raise the EU’s total debt, Hungary has repeatedly vetoed EU aid to Ukraine. In contrast to other EU leaders, Orban has maintained unusually warm ties with Vladimir Putin.

Why does Belgium object to this idea?

If Russia challenges the EU decision, or if the action harms Euroclear’s reputation and business model, Belgium worries that Euroclear, a Brussels-based financial clearing house that holds the majority of the frozen Russian assets, could wind up in costly litigation.

In theory, Russia has the right to contest the asset-freeze decision in the Belgian court where Euroclear is based.

Belgian Foreign Minister Maxime Prevot stated in an address to an audience at NATO headquarters in Brussels on Wednesday that he did not want to annoy our partners or Ukraine. We are merely attempting to prevent a member state from having to show solidarity without receiving the same level of solidarity in return.

Prevot argued that Belgium’s position on the reparations loan was “the worst of all because it is risky” and “has never been done before.” He opposes the EU’s use of leverage to finance a loan to Ukraine. He referred to it as “a well-known, robust, and established option with predictable parameters.”

Belgian officials have shown resolute support for him, especially now that a 28-point plan for a peace deal signed by US President Donald Trump was made public and included plans to use the frozen assets. They have doubled down on their opposition to the reparations loan in recent weeks.

The European Commission’s plan does contain measures to protect EU governments from “possible retaliation from Russia” and establish an EU-level borrowing mechanism to “underpin a loan to Ukraine” in response to Belgium’s concerns. Prevot, however, argued that Belgium is exposed because the commission’s safeguards do not go far enough, and that the reparation loans scheme “entails consequential economic, financial, and legal risks.”

He said, “It is unacceptable to use the money and leave us alone facing the risks.”

What is the stakes?

Following Moscow’s invasion of Ukraine nearly four years ago, some 290 billion euros ($337 billion) of Russia’s sovereign wealth was frozen by Western powers, primarily in the form of foreign exchange reserves held as cash and bonds.

As of June this year, Belgium holds approximately 194 billion euros ($225bn) in that country. Of these assets, Euroclear holds about 183 billion euros ($212 billion) on its own. In addition, the US, the UK, and Japan have larger assets than these.

In accordance with a 2024 agreement reached by the Group of Seven (G7) nations, Ukraine would be able to borrow money to be repaid using the interest earned on Russia’s frozen foreign assets, leaving Kyiv with the income they generate while also benefiting from the assets.

By putting a security seal on the frozen funds, yesterday’s announcement goes a step further.

What are the comments of Belgium’s EU partners?

Von der Leyen stated on Wednesday that she was taking Belgium’s objections into account. “We have taken almost all of Belgium’s concerns into account in our proposal,” we said. “We have listened very carefully to them. Because it is the European way, we will bear the burden in a fair way,” she said.

This was shared by other European officials. German foreign affairs minister Johanna Jann Wadephul stated: “We take Belgium’s concerns seriously. They are appropriate, but there is a solution to the problem. If we are willing to assume collective responsibility, it can be resolved.

The Netherlands’ foreign affairs minister, David van Weel, also made a point about the implications of Belgium’s resoluteness. These funds are “absolutely, really important.” The Ukrainian economy needs to be supported otherwise they will struggle the most next year.

Van Weel emphasized that Belgium has been heard by EU members. We are willing to at least make sure that the Belgians are not at risk, he said.

Other EU nations have already indicated their willingness to help Belgium avoid potential losses.

Meanwhile, Belgium has been generating tax revenue from the defrauded Russian funds, and Ukraine’s interest is already being redirected to a G7-organized loan package.

Source: Aljazeera