The ECB refused to insure the reparations loan to Ukraine: violates its mandate

The European Central Bank has refused to become a "lender of last resort" in a scheme to provide Ukraine with a 140 billion euro reparations loan using Russian assets, according to Financial Times on Tuesday.

According to several of the newspaper's interlocutors, the ECB concluded that the European Commission's proposal violated its mandate. This further complicates attempts to raise funds for Ukraine against the Russian central bank's reserves, which are blocked in the Belgian depository Euroclear.

According to the European Commission's plan, EU countries should provide state guarantees to distribute the risks of money repayment.

However, commission officials decided that member states would not be able to raise such a sum quickly in an emergency. Therefore, according to four people with knowledge of the matter, commission officials asked the ECB whether it could act as a "lender of last resort" for Euroclear Bank, the lending arm of the Belgian depository, to avert a liquidity crisis.

ECB representatives replied that this was impossible.

The ECB's internal analysis has shown that the Commission's proposal is effectively tantamount to direct financing of governments, as the central bank is essentially being asked to cover the financial obligations of member states.

"This proposal is not being considered as it is likely to violate the provisions of the EU treaties prohibiting monetary financing," the ECB said in a statement.

In this regard, the European Commission has begun to work on alternative options that could secure the loan.

"Providing the necessary liquidity for possible asset return obligations to the Russian central bank is an important part of a potential reparations loan. This is necessary to ensure that the EU, its member states and private entities can always fulfill their international obligations. Work on how to guarantee this liquidity is ongoing," the EC said.

• The idea of a "reparations loan" of up to €140 billion, based on the cash balances of Russian frozen assets, was put forward on September 10.
• Thanks to the "reparations loan", Ukraine could receive 45 billion euros annually over the next three years – from 2026 to 2028.
• october 23 EU postpones decision on the "reparations loan" until December.
• This decision determines the adoption of a new loan program between Ukraine and the IMF.