Europe's Glass Half-Full
A guest post by Hugo Dixon, one of the architects of the Ukraine reparation loan plan, on why he rates last week's EU deal as only 6 out of 10 - and why still holds out hope of getting to 10 out of 10
By Hugo Dixon
Simon Nixon has suggested I have been too negative on the European Union’s €90 billion loan to Ukraine. I gave it only 6 marks out of 10. I would have preferred to use the frozen Russian assets rather than EU borrowing to get cash to Kyiv. I am one of the architects of this “reparations loan” concept.
To be clear, I did not think the European Commission’s version of the reparations loan was the best one. I would have given it only 7 marks out of 10. Our group had a better alternative which might have avoided the problems the Commission ran into.
That said, here are my five reasons for rating the EU’s loan 6 out of 10 – which, by the way, is a glass that it more full than empty!
€90 billion is only enough to fund Kyiv for two years. While that is useful, the Russian assets in the EU could have financed Ukraine for four years. What’s more, there are other assets in the UK, Canada, Australia and other countries that would have been used in reparations loans if the EU had moved ahead. Such an operation would have made a huge impression on Vladimir Putin and Donald Trump, while really boosting Ukrainian morale. In other words, the EU may have missed an opportunity for a gamechanger.
Using the Russian assets to fund a reparations loan would have created leverage over Putin. It would have been provided in tranches – of perhaps €22.5 billion every six months. Every time the Russian president refused to stop fighting, he would have seen more of his cash go to his enemy. That would have given him an incentive to come to terms. Some will say the assets can still be used as leverage. But Putin will probably now think that his threats against the EU – and especially Belgium, where most of the assets are kept - have been successful and that it will never have the guts to channel the cash to Kyiv.
Trump has his own plans for the Russian assets – and may try to bully the EU to unfreeze them as part of a peace deal with Putin. It is true that the EU has now agreed that “qualified majority voting” will be needed to unfreeze the funds. That makes it harder for the US president to get his way. But if he wants his peace deal enough, Trump may be able to bulldozer Europe into submission. What about musing that any country which blocks him will lose protection under Nato’s Article 5 mutual defence clause?
This whole episode has damaged the relationship between Friedrich Merz and Emmanuel Macron. The German chancellor staked his reputation on the reparations loan while the French president backed common borrowing. Merz will feel let down. This matters because a good Franco-German relationship is necessary for the EU’s strength. Putin and Trump will be delighted.
Europe’s taxpayers may get tired of backing Ukraine. There may also be less appetite to use common borrowing to fund the EU’s own defences now it has been used to support Kyiv. “Russian assets for Ukraine’s defence, and EU money for the EU’s defence” would have been a much more powerful political message to Europe’s citizens.
One piece of good news is that the EU told the Commission to keep working on the reparations loan. It will need a better mousetrap. Our group’s proposal to shift the entire Russian account out of Belgium to a new jurisdiction could be exactly what it is looking for. While 6 out of 10 is moderately good, I still have not given up on the chance to get to 10 out of 10.
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You're right, Hugo, but it doesn't fix that sense of unmet hopes and expectations the EU seems so prone to generate in recent years (or perhaps decades). This is probably what it would be like to be an Everton FC fan. Even when victory seems within reach, the capacity for disappointment seems unlimited.
Solid analysis on the political economy angle. The leverage point about tranche-based disbursement from Russian assets is underused in policy debates, would've created real negotiating pressure on Putin that borrowing doesn't. The Merz-Macron rift seems like an unforced error that'll matter more down the line. I dunno if shifting to a new jurisdiction solves the Belgium vulner ability entirely, but at least it breaks the single point of failure problem.