The European Union is agreeing on the key parameters of a new multibillion-dollar loan for Ukraine. The corresponding official document has been at the disposal of Radio Liberty.
It says on what terms Ukraine may be granted a reparation loan, which will be financed by frozen Russian assets.
The amount of cash accumulated thanks to the bonds of the Russian Central Bank in the Belgian central depository Euroclear is about 176 billion euros. These funds are not being returned to Russia due to sanctions imposed by the European Union in response to its full-scale invasion of Ukraine.
The idea behind the loan to Ukraine is to give this cash to the EU, which will “enter into a customised debt contract with Euroclear at 0% per annum”.
The EU would use the funds to finance a loan to Ukraine, which it would in turn repay only if Russia repays the losses it caused.
“This design ensures that the reparation loan will be treated by the IMF as a contingent liability and will not be counted towards Ukraine’s total debt,” the paper said.
The operation, the note said, would not affect Russia’s sovereign assets, which Euroclear owes it back, as it could be cancelled along with the lifting of sanctions. And it, in turn, could happen if certain conditions defined by the EU are met: Russia’s cessation of war and compensation to Ukraine for the damage caused.
“The reparations that Russia will provide to Ukraine will be used to repay the reparation loan from the EU, which the EU in turn will return to Euroclear, guaranteeing that after the lifting of sanctions Euroclear will have the necessary funds to fulfil its obligations to Russia”, – explained in the document.
It is noted that the operation should be guaranteed by EU member states so that it, in turn, can return funds to Euroclear if necessary.
“The guarantees should be activated if a repayment obligation to Euroclear arises that is not covered by Ukraine’s reparation loan payment. This should, in principle, only happen if the EU decides to lift sanctions without Russia making a partial or full reparations payment to Ukraine,” the paper said.
The note admits that sanctions against Russia could be extended by qualified majority rather than unanimously, in order to “significantly reduce the risks arising from the guarantees and make it very unlikely that the guarantees would be used against the wishes of the guarantors.”
Some of the cash, it is noted, will have to be spent on repaying ERA (Extraordinary Revenue Acceleration – a G7 initiative to provide Kiev with financial resources through profits from frozen Russian assets) loans.
“This would leave approximately €140 billion of net financing for Ukraine,” the document said.
The reparation loan will be paid to Ukraine in tranches. Euroclear will release the cash balances gradually.
“The disbursement of the tranches will be subject to pre-agreed conditions. Part of the loan will be linked to European Defence Cooperation, building on the SAFE initiative. Part of the loan proceeds may also be used to cover budgetary needs,” the note summarised.
The idea of a reparation loan to Kiev, based on the cash balances of Russian assets frozen in the West after Russia’s invasion of Ukraine in 2022, was proposed by European Commission President Ursula von der Leyen on 10 September