MNI: Ukraine Loan Talks Need More Time - EU Officials

Concluding a political agreement on EUR140 billion in reparations loans to Ukraine is likely to take more time in order to address legal and financial details, particularly regarding co-guarantees, officials told MNI. 

France has significant concerns over the proposed financial package which will be secured on cash balances flowing from the EUR180 billion or so of frozen Russian central bank assets at Euroclear in Brussels, they said.

"France wants a fair division of the sharing of those contingent liabilities," a French official said. "We want to ensure the UK, Canada and the U.S. are on board."

While the UK has made positive noises on the margins of Thursday’s Copenhagen summit and Canada also looks ready to join in, the U.S. remains aloof and spent much of a G7 ministerial call on Wednesday again lambasting Europe to impose secondary tariffs on China over its role as an "enabler" for continuing Russian aggression in Ukraine, officials said.

Some other sources said that Paris, despite its current objections, is ultimately unlikely to stand in the way of the loan, given the lack of adequate alternative solutions to Ukraine's grim funding outlook. 

Spain regards the loan proposal favourably, but it too would like to see a solution for the use of the Russian assets which better safeguards the financial stability of the euro area. 

LEGALITY

ECB President Christine Lagarde is also said to have ongoing concerns regarding the loan and its legality in international law, as well as the implied threat to the euro as an international reserve currency.

The European Commission on Thursday ruled out any suggestion that the loan would be guaranteed by the EU Budget, but said that details of how a collective guarantee would work are yet to be worked out. (See MNI INTERVIEW: EU Bond Market Needs More Issuance-ICMA's Hill)

Pressure from the U.S. has played a key role in pushing the EU to escalate action on the assets, with the Trump administration keen to see Europe put the funds in place for the purchase of U.S.-made weapons for Ukraine's defence. 

Meanwhile France has also called for an agreement "in principle" under which the proceeds of the loan should be used principally for the purchase of European weapons, given the EU's large exposure to the risks surrounding the transaction. 

A French source stressed that this did not rule out specific purchases of U.S.-made equipment in the short term. 

"I am not saying this is not going to be tricky, but at the least it needs to be set down as a principle," the French source said.