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An “unequivocal signal to Moscow” was how German Chancellor Friedrich Merz described the EU’s decision to provide a €90bn lifeline to Ukraine in the early hours of Friday morning.
The loan, to be raised through common EU borrowing, will provide Kyiv with much-needed financial certainty for the next two years, unlocking a new IMF package. It will help prop up Ukraine’s defences, allow it to purchase more weapons from abroad and, crucially, expand its domestic arms production.
It is a demonstration of Europe’s commitment to Ukraine’s fight against Russian aggression. A failure to find the cash would have been a terrible indictment of European weakness at a time when it desperately needed to show resolve.
But the manner in which it reached its decision hardly sends an unequivocal message. After more than 16 hours of summit negotiations and weeks of prevarication over the design of its support, EU leaders ditched a plan to use frozen Russian central bank assets to raise a so-called “reparations loan” also worth €90bn.
The scheme was, in the end, deemed too contentious and too complicated. It faced implacable opposition from Belgium, where most of the assets are held and which feared being left on the hook if Moscow were somehow awarded the right to recover them. It was also scuppered by lukewarm support from Italy and France and the reticence of smaller countries to see little Belgium steamrollered by Germany, the scheme’s chief backer.
The outcome is a setback for Merz, who went out on a limb to campaign for the reparations loan, cheekily claiming it as his own idea in an article for the Financial Times. Merz stood against further common EU borrowing. Now he has had to swallow it.
It is also an embarrassment for European Commission president Ursula von der Leyen, who invested months of effort in trying to make the frozen assets scheme work, arguing there was no palatable alternative — only for the alternative to materialise at the eleventh hour.
Merz and von der Leyen will argue that the new loan scheme maintains the EU’s grip on the Russian assets. They are now frozen permanently, rather than for six months at a time. Ukraine will not have to repay the €90bn loan until Moscow pays it reparations. But in those frozen assets, the EU had real leverage with Russia as negotiations to end the war in Ukraine enter a critical phase. When it came to using that leverage, the EU blinked.
Late night summits, EU leaders poring over technical details, fierce defence of national or economic interests — this is how the EU works. But the world is changing with frightening speed, so the gulf between strategic purpose and the narrow pursuit of national self-interest, fuelled by the rise of nationalist politics, is all the more glaring.
Belgium’s preoccupation with legal niceties torpedoed the reparations loans. The desire of France, Italy and others to mollify angry farmers over an import quota for beef amounting to a little over 1 per cent of EU production has delayed once again — and possibly killed — the conclusion of the EU’s trade deal with Mercosur. French President Emmanuel Macron’s homilies about making Europe a geostrategic actor ring hollow.
EU leaders were able to agree to new common borrowing to help Ukraine because Hungary, Slovakia and the Czech Republic secured a carve-out, a sign of the growing band of countries opposed to helping Kyiv. Moscow will be encouraged, even if European solidarity with Ukraine elsewhere remains remarkable.
The common debt will be raised using so-called headroom in the EU’s budget — even though previously there did not seem to be much headroom to use. In that sense, this initiative is an extension of an earlier common borrowing scheme to help Ukraine. This is no “Hamiltonian” step forward to fiscal federalism. What is innovative is common borrowing by a subgroup of EU members. It shows that action through “coalitions of the willing” is likely to be the way forward in many domains for an otherwise cumbersome union of 27. The EU has shown it can be adaptable.
So has Merz. The German leader has shown leadership on support for Ukraine and on his country’s effort to re-arm, taking risks and keeping his eye on the big picture. If only all EU leaders could do the same.
