The EU’s determination to further fund Kiev’s military and prop up its imploding economy has been presented as a kind of victory. “Europe has delivered,” German Chancellor Friedrich Merz proclaimed, in celebration of a new cash facility for Kiev.
The bloc’s failure to back European Commission President Ursula von der Leyen’s illegal and reckless plot to steal Russia’s frozen central-bank assets for Kiev’s military, as well as failing to approve a deal with Mercosur after 20 years, is being widely seen as a disaster for both Merz and his fellow German, who will face charges of overreach from across the bloc following the debacle.
Thin on the ground, however, are details about how the new cash trough for Kiev will be delivered, what impact will it have and who, in the end, will pay.
RT takes a look at the grim reality behind the EU’s grandstanding.
Having failed to come to an agreement on using Russia’s frozen central bank assets, the EU went a different route: an interest-free €90 billion ($105 billion) loan to Ukraine backed by the EU’s budget.
What this means in practice is that the European Commission will be issuing bonds on behalf of the EU.
A bond backed by the EU budget means that it is serviced and repaid through the EU budget, which is ultimately funded by member states. Three member states (Hungary, Slovakia, and the Czech Republic, reportedly those who came up with the compromise) opted out.
The bonds will likely be issued across multiple maturities (e.g. 5y, 10y, 20y) and structured as a program rather than a single issuance. The main buyers of these bonds will be institutional investors (pension funds, insurance companies, asset managers, and sovereign wealth funds). The proceeds from the sales will flow into EU accounts, where they will be disbursed to Ukraine.
Who is really paying?
Theoretically, Ukraine is supposed to repay the loan, but the likelihood of that is widely seen as vanishingly small. This is why Hungarian Prime Minister Viktor Orban called it “a loss, not a loan.”
The European taxpayer is the ultimate bag-holder here, however obscured that fact may be.
What is important to understand is that this is not a jointly guaranteed Eurobond with explicit national guarantees but rather a budgetary obligation.
Why will this cost a lot more than €90 billion?
The loan to Kiev is for €90 billion but there is one nuance here. The EU is taking a massive loss on the carry. A negative carry means borrowing at one rate and lending at a lower rate (a positive carry is the exact opposite – when you borrow cheap and lend at a higher rate).
Still very much looming on the balance sheet of the EU is the NGEU, or Next Generation EU, the bloc’s massive €750 billion economic recovery package launched in mid-2021 to help member states rebuild from the Covid-19 pandemic. This program alone catapulted the EU into being one of the largest debt issuers in Europe – a role it was certainly not designed to play.
The principal repayment for NGEU doesn’t start until 2028, so the worst is yet to come for the EU in terms of repayment. Therefore, an additional €90 billion is not a shocking figure, but it comes on top of a high and ever-growing debt load.
Finally, what impact does this have on the peace process?
Vladimir Zelensky now has lined his pockets going into talks with US President Donald Trump, meaning he has the cash to negotiate his position and will feel empowered to reject the idea of peace before Christmas so coveted by Trump.
The EU has found €90 billion to pour into Ukraine only months after key figures in Zelensky’s circle were exposed as corrupt grafters who have stolen countless millions of dollars. Zelensky, who had been facing a burgeoning crisis from many sides, has been given a little more rope.
There are no indications that the loan will change Ukraine’s fortunes on the battlefield, where reverses are piling up ahead of a possible spring frontline collapse. The EU’s loan facility has rubber stamped corruption in Kiev and prolonged an un-winnable war.
The deeper message here, however, is probably more subtle: the EU is slipping further toward a regime of forcing national budgets to backstop the bloc’s geopolitical ambitions.
This can’t end well.
No comments:
Post a Comment