The European Central Bank has refused to insure the “reparations loan” for Ukraine

The European Central Bank has rejected a European Commission proposal to provide guarantees for the payment of €140 billion from frozen Russian assets.

This was reported by the Financial Times, citing unnamed European officials.

According to the sources, the ECB decided that the Commission’s proposal would violate the bank’s mandate. They say this has dealt “a blow to the EU’s plan” to raise a “reparations loan” backed by Russian assets.

The European Commission’s plan envisages that, in the event of such a loan, EU countries would provide guarantees to the Belgian depository Euroclear, where the frozen Russian assets are currently held.

However, the sources say that member states would not be able to quickly raise the money in an emergency. That is why the Commission turned to the ECB, asking it to act as the lender of last resort for guarantees on the repayment of this loan.

According to FT’s sources, the ECB refused because the proposal would in practice amount to direct financing of governments. This is prohibited in the EU, as it leads to higher inflation and undermines trust in the central bank.

“Ensuring sufficient liquidity for a potential return of assets to the Russian central bank is an important part of a possible reparations loan. Work on this is ongoing,” one of the officials interviewed by the paper said.

Earlier, Belgian Prime Minister Bart De Wever called the EU plan “fundamentally flawed.” He believes that if the assets are ever unfrozen and Moscow demands them back, Euroclear will not be able to pay out the money immediately.