LIVE: EU Chief von der Leyen on Ukraine financing

Key Concepts

• Reparations Loan: A loan to Ukraine funded by cash balances from immobilized Russian assets, to be repaid if and when Russia pays reparations.
• EU Borrowing: The EU raising capital on capital markets, using its budget as a guarantee, and then lending it to Ukraine.
• Immobilized Russian Assets: Russian assets frozen by the EU as a consequence of the war in Ukraine.
• Qualified Majority Voting (QMV): A decision-making process in the EU where a proposal is adopted if it receives support from a certain percentage of member states and population.
• Unanimity: A decision-making process in the EU where all member states must agree for a proposal to be adopted.
• Cascading Principle: A principle for military support where funds are predominantly used for production and purchase within Ukraine and EU member states, with exceptions for urgent needs.
• Central Securities Depositories (CSDs): Institutions that hold and settle securities.
• European Financial Stability Mechanism (EFSM) / Macro-Financial Assistance (MFA): Existing EU instruments for providing financial support to third countries.
• Ukraine Facility: A proposed new EU instrument to provide financial support to Ukraine.
• Headroom of the EU Budget: Unused capacity within the EU budget that can be used for guarantees.
• No Claims Clause: A clause that prevents claims against a member state from being enforced within the EU.
• Sovereign Immunity: The principle that a sovereign state is immune from the jurisdiction of foreign courts.

Financing Ukraine: EU Proposals for Financial Support

This press conference outlines the European Union's proposals for financing Ukraine's needs, addressing the critical juncture of the ongoing war and escalating Russian attacks. The proposals aim to provide Ukraine with the financial means to sustain its state and basic services, as well as to support its defense capabilities, enabling it to negotiate peace from a position of strength.

1. Ukraine's Financing Needs and EU's Commitment

• Estimated Needs: The International Monetary Fund (IMF) estimates that Ukraine will require €135 billion for the years 2026 and 2027 to maintain state functions, basic services, and its defense efforts.
• EU's Role: The EU reiterates its commitment to being Ukraine's strongest and most steadfast partner, aiming to match Ukraine's stamina and resolve by equipping them with the means to defend themselves and negotiate from strength. The EU believes that increasing the cost of war for Russia is the only language the Kremlin understands.

2. Proposed Financing Solutions

The EU is tabling two solutions for member states to agree upon, aiming to cover 2/3rds of Ukraine's financing needs, approximately €90 billion. The remaining portion is expected to be covered by international partners.

a) EU Borrowing

• Mechanism: The EU would raise capital on the capital markets, using the EU budget as a guarantee, and then provide this capital as a loan to Ukraine.
• Decision-Making: This solution requires unanimity among member states.

b) Reparations Loan

• Mechanism: This proposal utilizes the cash balances from immobilized Russian assets held within the European Union. Financial institutions holding these cash balances would be required to move them into the reparations loan instrument. The loan is to be repaid by Ukraine if and when Russia pays reparations.
• Decision-Making: This solution can be established by qualified majority voting (QMV).
• Legal Robustness: The proposal is stated to be legally robust, fully in line with EU and international law, respecting the principle of sovereign immunity. It is also without prejudice to the claims of the Central Bank of Russia.

3. Allocation of Funds

The funds raised will be used for two primary purposes:

a) Budget Support for Ukraine

• Methodology: This will build upon existing successful instruments such as Macro-Financial Assistance (MFA) and the proposed Ukraine Facility.

b) Military Support

• Goal: To boost Ukraine's defense industrial capabilities and integrate them into the EU's defense industrial base.
• Cascading Principle: Funds will predominantly be used for production and purchase within Ukraine and EU member states. However, if urgent needs cannot be met domestically, the funds will allow for purchases from outside the EU.

4. Safeguards and Protections for Member States

Intense discussions have taken place, particularly concerning Belgium's concerns due to Euroclear's location. The proposals include strong safeguards to protect member states and minimize risks:

• Protection Against Enforcement: Measures are in place to ensure that illegitimate awards outside the EU cannot be enforced within the EU.
• Solidarity Mechanism: A strong solidarity mechanism is created, allowing the Union to intervene to ensure a fair burden-sharing among member states.
• Guarantees for EU Borrowing: Member states are called upon to provide guarantees to underpin the EU borrowing, ensuring it is fully protected and that burden-sharing is fair. These guarantees would be covered by the EU budget's headroom under the next Multiannual Financial Framework (MFF).
• Protection Against Russian Actions:
  • Acts of the Union are considered Union responsibility, not that of individual member states.
  • Existing protections, including a "no claims clause," prevent claims against Belgium or other member states from being enforced in the EU.
  • A provision is introduced to allow for the recovery of damages against non-sovereign assets of member states in third countries.
  • Mechanisms are in place to deter actors facilitating enforcement on behalf of Russia.
• Belgian Concerns Addressed:
  • Scope Extension: The reparations loan approach has been extended to cover all Central Securities Depositories (CSDs) and commercial banks in the EU, not just Belgium and Euroclear.
  • Burden Sharing: A strong guarantee mechanism is in place to cover any damages occurring in member states contributing to the loan.
  • Euroclear's Obligations: A strong liquidity mechanism ensures Euroclear can always honor its obligations, including potential repayments to Russia. This includes the EU budget and member states.

5. Continued Immobilization of Russian Assets

• Legal Basis: A new regulation provides a legal basis for measures appropriate to the economic and security situation, including prohibiting the transfer of immobilized assets to Russia.
• Rationale: This aligns with European Council conclusions stating that Russia's assets should remain immobilized until the war of aggression ceases and compensation for damages is provided.
• Volume: Approximately €210 billion worth of immobilized Russian assets are in the EU, representing the maximum potential loan amount.

6. Preconditions for Support

Ukraine must meet essential preconditions to receive support, including:

• Respect for democratic mechanisms.
• Respect for human rights and the rule of law.
• Fighting corruption.

7. Message to Ukraine and Russia

• To Ukraine: A strong signal that the EU is committed for the long haul, providing the means to defend themselves and negotiate from a position of strength.
• To Russia: The EU borrowing or reparations loan will increase the cost of war for Russia, inviting them to the negotiation table to find peace.

8. Discussion on US Attitude and Leverage for Peace

• US Administration: The US administration has been informed and has positively received the plan for the reparations loan. The construction is designed to invite other countries with immobilized Russian assets to join.
• Leverage for Peace: The EU argues that the reparations loan will contribute positively to peace negotiations. It makes clear the EU's long-term commitment to Ukraine. Russia's actions have prolonged the war, and this measure imposes a high cost on them for prolonging it. It also secures Ukraine financially, allowing them to negotiate from a position of strength. The EU emphasizes that they want peace, and this is an invitation to the negotiation table.

9. Clarification on Figures and Confidence in Agreement

• Figures:
  • Total immobilized Russian assets in the EU: €210 billion.
  • Ukraine's estimated needs for 2026-2027: €137 billion.
  • EU's proposed coverage (2/3rds): €90 billion.
  • Reserve for repayment of existing loans (e.g., EFSM/MFA): €45 billion.
  • The total volume of immobilized assets allows for larger financial support, with indicative amounts of €45 billion per year for the next two years, which can evolve.
• Confidence in Agreement: The EU acknowledges the tasking from the European Council to present legal texts before the December Council. While discussions with member states, including Belgium, are ongoing, the EU is confident that improvements can be made to the proposal. They highlight that key Belgian concerns have already been incorporated. The decision on the reparations loan can be made by QMV, which is seen as a path forward even if unanimity is difficult to achieve (e.g., due to Hungary's stance).

10. Conclusion

The EU is taking decisive action to provide substantial financial support to Ukraine through innovative mechanisms like EU borrowing and a reparations loan funded by immobilized Russian assets. These proposals are designed to be legally sound, with robust safeguards for member states, and aim to strengthen Ukraine's position in its defense and peace negotiations, while also sending a clear message to Russia about the escalating costs of its aggression. The EU calls for unity and decisiveness from member states to move forward with these urgent measures.