EU leaders prepare to take unprecedented steps to help Ukraine at summit

European Union leaders are about to attempt something they’ve never tried before. The chances of failure are significant. Their actions this week could set dangerous precedents, and a wrong move could undermine trust among the bloc’s 27 member countries for years to come. At a summit starting on Thursday, many of the leaders will press for tens of billions of euros in frozen Russian assets held in Europe to be used to meet Ukraine’s economic and military needs for the next two years.

Ukraine is on the verge of bankruptcy. The International Monetary Fund estimates that it will require a total of 137 billion euros ($160 billion) in 2026 and 2027. It must get the money by spring. The EU has pledged to come up with the funds, one way or another. “One thing is very, very clear,” European Commission President Ursula von der Leyen told EU lawmakers on Wednesday. “We have to make a decision to fund Ukraine for the next two years in this European Council.”

European Council President António Costa, who will chair the summit, has vowed to keep the leaders negotiating until an agreement is reached, even if it takes days. High-risk loan The European Commission has proposed that the leaders use some of the frozen assets — totalling 210 billion euros ($246 billion) — to underwrite a 90 billion-euro ($105 billion) “reparations loan” to Ukraine. The UK, Canada and Norway would fill the gap.

The plan is contentious. The European Commission insists that its reasoning and legal basis are sound. But the European Central Bank has warned that international trust in the euro single currency could be damaged if the leaders are suspected of seizing the assets. Most of the frozen assets belong to the Russian Central Bank and are held in the financial clearing house Euroclear, which is based in Brussels. Belgium fears Russian reprisals, through the courts or in other, more nefarious ways.

Euroclear fears for its reputation. It believes the commission’s idea is legally shaky and that international investors might look elsewhere if it transfers the Russian assets to an EU debt instrument, as von der Leyen’s plan demands. Last week, the Russian Central Bank announced that it’s suing Euroclear in a Moscow court. The chances that the case will succeed appear limited, but the move does increase pressure on all parties before the summit.

Unlikely plan B

The commission, the EU’s powerful executive branch, has proposed a second option. It could try to raise the money on international markets, much in the way it underwrote a major economic recovery fund after the start of the coronavirus pandemic.

Belgium prefers this option. But plan B would require all 27 leaders to agree for it to work, and Hungary refuses to fund Ukraine. Hungarian Prime Minister Viktor Orbán sees himself as a peacemaker. He’s also Russian President Vladimir Putin’s closest ally in Europe.

In contrast, plan A — the reparations loan — only requires a majority of around two-thirds of member countries to pass. Hungary can’t veto it alone. Slovakia might say no. Belgium, Bulgaria, Italy and Malta remain to be convinced.

Even if all six countries reject the loan to Ukraine — which would only be refunded if Russia ends its war and pays hundreds of billions of euros in war damages, something many Europeans doubt Putin would do — they still wouldn’t have a blocking minority.

Running a steamroller over Belgium, which has a great stake in the outcome and deep concerns about the loan, could undermine the entire European project, making it infinitely more difficult to find voting majorities on other issues in the future.

But on the eve of the summit, it remained unclear precisely how the plan would work, what kind of guarantees each country would give to reassure Belgium that it doesn’t face Russia alone, and even whether the leaders can actually approve it outright this week.

“It’s a really new approach. Everyone has questions,” according to a senior EU diplomat involved in the negotiations, which continued on Wednesday. “You’re talking about mobilising public finances. Parliaments might need to weigh in. It’s not easy.” The diplomat was appointed to brief reporters on the latest developments on the condition that he not be named.