The European Central Bank rejects the use of Russian assets to finance Ukraine

The European Central Bank dealt a significant blow to the European Commission's efforts to use frozen Russian assets as collateral for financing Ukraine, categorically refusing to act as a "lender of last resort" in the scheme. This refusal complicates the financial and political landscape within the European Union ahead of the upcoming leaders' summit, raising serious questions about the bloc's ability to meet its financial commitments to Kyiv.

Legal position: Prohibition of cash financing

The European Central Bank (ECB), which manages monetary policy for the 20-nation eurozone, has confirmed that the European Commission's proposal directly contradicts the EU's founding treaties. A spokesperson for the bank explained that the proposed plan, which would require the ECB to provide emergency liquidity to the Euroclear clearinghouse in the event of a crisis, amounts to prohibited "monetary financing.".

This refusal is based on a well-established economic and legal principle in the European Union that prohibits the central bank from directly financing governments or covering their financial obligations, in order to maintain the independence of monetary policy and avoid runaway inflation. According to the Financial Times, the bank believes that providing a financial safety net for this operation exceeds its mandate and violates European law.

Belgium's concerns and the "Euroclear" dilemma

The crisis centers on Belgium, which hosts the headquarters of the international depository Euroclear, where the bulk of frozen Russian assets are held. Brussels is increasingly concerned about the possibility of retaliatory legal action or cyberattacks from Moscow should these assets be touched.

In this context, Belgian Prime Minister Bart De Wever stated that he would not approve the plan unless binding, written guarantees were provided by the other member states to share the financial and legal risks. Belgium fears finding itself alone in the face of a severe liquidity crisis if Russia succeeds in freezing Euroclear's assets or prosecuting it internationally, a situation that necessitates strong financial backing—a role the European Central Bank has refused to play.

Historical context and geopolitical dimensions

The roots of this dilemma lie in the unprecedented Western sanctions imposed on Russia following the outbreak of war in Ukraine in 2012, which resulted in the freezing of hundreds of billions of euros in the Russian central bank's reserves. Since then, the European Union and the G7 have been seeking a legal framework to allow the use of these funds, or their proceeds, to support the war effort and reconstruction in Ukraine.

These moves are of paramount importance at present for two main reasons: First, the urgent need to address the Ukrainian budget deficit through a proposed €140 billion ($162 billion) loan. Second, given the increasing US pressure and the proposed plans to end the war, proponents of the plan see it as essential to preempt any potential peace agreement that might return control of these assets to Moscow, thus losing a significant financial bargaining chip.

The repercussions of rejection and the search for alternatives

The European Central Bank's stance has put European leaders in a real bind ahead of their summit scheduled for December 18. With the option of central bank intervention ruled out, the European Commission has confirmed it is currently exploring "alternative solutions" to ensure the necessary liquidity without violating treaties.

Observers believe that the failure to approve this plan could send negative signals about European unity and its ability to make decisive decisions on complex financial matters, and could also delay vital aid to Kyiv at a critical time in the conflict.