The European Central Bank reportedly has refused to serve as a financial backstop for a massive EU "reparations loan" to Ukraine, a decision that undercuts Brussels' plan to raise roughly $140 billion against frozen Russian central bank assets held at Euroclear in Belgium.
According to multiple officials cited by the Financial Times, the ECB concluded that a European Commission proposal would violate the central bank's mandate and run afoul of EU treaty rules barring "monetary financing," the practice of central banks effectively funding government obligations.
The ECB warned that such actions are prohibited because they can undermine confidence in a central bank and contribute to inflation and instability.
At issue is how the EU would protect markets if Russia's immobilized assets were suddenly unfrozen and reclaimable.
Under the commission's concept, EU member states would provide guarantees so repayment risk is shared across the bloc.
But commission officials privately warned that governments might not be able to mobilize cash quickly during a crisis, potentially putting severe pressure on markets and on Euroclear Bank, the lending arm of the Belgian securities depository, the FT reported.
The officials asked the ECB whether it could function as a lender of last resort to Euroclear Bank to prevent a liquidity crunch. The ECB said no because doing so would effectively shift member-state financial obligations onto the central bank, something EU rules are designed to prevent.
The setback comes as Europe faces growing urgency to fund Ukraine for the next two years amid battlefield pressure and widening fiscal needs.
Reuters has also reported that Kyiv has pressed Europe to unlock Russian assets, as international funding remains critical and Ukraine's financing gap remains substantial.
Belgium, where Euroclear is based and where a large share of the frozen funds sit, has emerged as a key obstacle.
Belgian Prime Minister Bart De Wever has called the "reparations loan" scheme "fundamentally wrong" and demanded binding guarantees from all EU states to cover the risks — especially if sanctions keeping the assets immobilized are overturned or not renewed, The Guardian reported.
Those sanctions require unanimous renewal every six months, and dissent from countries such as Hungary has fueled concerns that Europe's legal footing could shift quickly.
The FT report said the commission is now working on alternative mechanisms to provide temporary liquidity support for any loan structure that relies on the Russian assets.
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