ECB Draws a Clear Line: No Role in Geopolitical Maneuvering
The European Central Bank has delivered a decisive blow to the European Commission’s plan to leverage frozen Russian assets as collateral for a massive €140 billion “reparations loan” to Ukraine, rejecting requests to provide guarantees that would backstop the debt in case of market stress.
According to multiple senior officials, the ECB determined that the proposal violates its mandate, as it would amount to indirect financing of EU governments—an act strictly prohibited under the EU Treaties. The stance leaves Brussels scrambling for alternative options just as Kyiv faces a severe liquidity crunch amid intensified Russian military attacks and a US-led diplomatic push for a new peace initiative.
A Plan Built on Frozen Assets—and on Legal Thin Ice
The Commission’s idea rested on a politically bold, legally fragile premise: EU member states would provide guarantees for a long-term, large-scale loan to Ukraine, using the frozen assets of the Russian central bank held at Euroclear as the economic anchor.
But officials warned that, in the event of sudden market stress or repayment failures, member states would struggle to mobilize the required liquidity quickly. That scenario could trigger financial instability—precisely the situation the ECB is tasked with preventing.
To shield the system, Brussels asked the ECB to consider acting as lender of last resort to Euroclear Bank, the Belgian entity managing the frozen Russian securities.
The ECB refused.
Why the ECB Said No: “Monetary Financing” Red Line
According to insiders familiar with the internal assessment, the ECB concluded that the Commission’s proposal effectively required the central bank to guarantee the financial obligations of EU governments—a step authorities described as “monetary financing”.
Under EU law, monetary financing is strictly prohibited due to the inflationary risks and the threat it poses to central bank credibility.
In a brief statement, the ECB underscored the point:“Such a proposal is not under consideration, as it would likely violate EU law prohibiting monetary financing.”
The rejection leaves the Commission without the backstop it considered essential to avoid a liquidity crisis at Euroclear in the event of contested or delayed repayment.
Brussels Forced Toward Plan B… and Possibly Plan C
In response to the ECB’s refusal, the Commission has begun drafting alternative mechanisms to ensure temporary liquidity for the €140 billion Ukraine loan. Officials say the priority is to create a framework that preserves the EU’s legal obligations while still enabling large-scale financial support for Kyiv.
A Commission spokesperson noted that Brussels has been in “close contact” with the ECB since October 2022 and that the central bank “participated actively in all discussions” regarding the financing proposal.
The spokesperson added:“Ensuring the necessary liquidity for potential reimbursement obligations to the Russian central bank is a crucial element of any reparations loan. Work on detailed mechanisms is ongoing.”
A Rare Public Clash Between Institutions
The ECB’s firm stance highlights a widening institutional tension inside the EU:
- the Commission seeks maximum financial firepower to support Ukraine;
- the ECB aims to protect its legal boundaries and financial stability mandate;
- member states remain divided about how far they are willing to go in leveraging frozen Russian assets.
With the ECB’s rejection, the EU’s long-promised “Ukraine financing architecture” faces yet another setback—leaving Brussels under pressure to find a legally sound, politically acceptable, and financially credible plan.
Source: pagenews.gr