I have been watching this space for a while. Since, the US has not renewed its vast contribution the burden of supporting Ukraine’s economy and hunger for weapons has shifted to Europe. And Europe is struggling:
European military aid to Ukraine declined sharply this summer despite an initiative in which European countries bought US weapons, the Kiel Institute for the World Economy said on Tuesday. Europe sent or earmarked a total of €3.3bn (US$3.8bn) in military aid to Ukraine in July and August, averaging €1.65bn per month. It was a 57% drop compared with January to June this year, when European countries allocated on average €3.85bn per month. Military aid from all countries declined by 43% over the same period, even as Canada announced a large aid package at the end of August. [1]
As usual the bold is direct from the Guardian.
This was all predictable. The resource crunch has been long commented on by serious analysts such as John Mearsheimer. In addition; look at the state of the European economies. The UK, in particular, is in a real mess. Having maxed out the government debt during Covid – on various idiocies such as paying people not to work, and money laundering scams such as the “Track and Trace” scheme, interest payments on the debt are now GBP 100 billion a year – more than the defence budget. The UK is now up the spout, in financial terms. According to Mearsheimer, France and Germany are also struggling financially – not least because of the self-inflicted wound in relation to energy imports.
So. It looks like the last gasp chance to keep the war going is to steal the Russian assets – the bulk of which are held in a private financial instruction in Belgium, EuroClear. The EU, and UK, governments don’t have the money. Not surprisingly, given that this is the only option left, the EU leadership has now convinced themselves that stealing these assets is legal. This is a really good explanation of the proposed mechanism. (It contrasts with entirely uninformative non-journalism such as this article by the Guardian’s Brussels correspondent and others, which simply fails to explain anything; a good example of non-journalism. I still don’t know; do they do this because they themselves couldn’t be bothered to try to understand the matter at hand, or because they think it is too difficult for their readers?). The key aspect of the plan is this; the seized securities have now matured into cash. EuroClear has invested that cash at the ECB (European Central Bank). The heist is to get EuroClear to pay that money to the Commission, direct into a Commission bank account, in exchange for “Euro Coupons”, essentially Commission IOUs. These IOUs are guaranteed by EU governments; a necessary step, otherwise they could not be considered to have any value. EuroClear then has simply swapped one investment for another, and so is not compromised. The Commission will loan the money to Ukraine. After the war, when Russia is to pay reparations, (note the shift into phantasy here), Ukraine will pay back the Commission using the reparations it will receive from Russia. The EU governments who have guaranteed the loan are pretty safe from having to cover it because they themselves would have to take the decision to return the assets to Russia before reparations have been paid, which, obviously, they won’t do.
There are a couple of flies in the ointment. Hungary might decline to renew a sanctions package, which includes the decision to freeze Russian assets, on this basis, thus triggering the situation where the EU governments are immediately on the hook for the full amount! Indeed, not mentioned by Reuters, Hungary already has a EU court case against the EU in relation to the decision to freeze the assets having been taken without them. [2] (This fact is barely reported in the Western media, strangely). So; that is not a good omen. It seems the Commission think they have found a “loophole” which will enable them to shift sanctions votes to QMV (qualified majority voting) and thus bypass a veto from Hungary. The other issue is it is really not true that EuroClear is simply swapping one asset for another, and so the assets have not really been stolen. Even in purely financial terms, EuroClear would be swapping a solid investment, funds held at the ECB, for a high-risk political investment, these EU coupons. I would assume EuroClear will have to be coerced into doing this by Belgian law. Which is why, the Belgians are demanding separate guarantees for them; they don’t want to be on the hook for 185 billion Euros.
In reality, if this happens, and a way round the various obstacles is found, including the idea of violating the very principles of how the EU Council is supposed to work, one can imagine a situation where everything remains frozen. The EU could indefinitely postpone dropping sanctions in order not to be on the line for the loan. But; stop, think. Surely; if there is to be any negotiated peace that will involve dropping sanctions? It is hard to see Russia signing a peace deal, a serious, long-lasting structural deal, if the EU is still hanging onto hundreds of billions of Euros of their money and shouting about “reparations”. So, once again, it seems like the EU is planning for eternal war with Russia. Like the idea of an EU army in Ukraine to “enforce the peace”, the ideas from the EU are all a) predicated on an assumption of a total Russian defeat and b) block any hopes for a negotiated settlement. However; the war cannot be eternal. If if this money is transferred it will only keep Kiev going for a couple of years. What then? (Assuming their army does not collapse in the meantime due to manpower shortages). I guess the EU hopes, (note hopes, not thinks, analyses), that if they can string this out for another two years, the Russian economy will collapse. At best that is a hope. This is, surely, not the basis on which to make policy; stealing and vague hopes? That is how criminals think. It is unlikely to end well for Europe.
Notes