Another ninety billion euros for Ukraine from the European Union. This, in essence, is the legislative proposal presented by the Commission on January 14th. The plan calls for raising the EUR90 billion on the market to cover the European contribution to Ukraine for the two-year period 2026-2027. The legislative proposal must be approved unanimously by the governments of the member states and subsequently by the European Parliament. The Commission intends to use the European budget as a guarantee for the loan. The costs of the operation will be borne by only 24 of the 27 EU member states, because the governments of Hungary, the Czech Republic, and Slovakia have decided not to assume the costs of the loan, while still giving their approval to the use of the EU budget for financial aid to Kiev. This is so-called enhanced cooperation, which perhaps would be more accurately called weakened cooperation, because it is a tool that allows a group of at least nine member states to establish a specific collaboration, pursuing common objectives when unanimous EU action is blocked, operating in areas not under exclusive EU competence, and respecting principles such as openness to all and non-prejudice to other states.
Ukraine could benefit from an initial tranche of funding as early as April 2026. The loan will be conditional on respect for the rule of law and the fight against corruption, while the funds must be used by the Kiev government primarily for purchases of goods and services produced in the European Union: specifically, EUR60 billion is earmarked for military purposes, while EUR30 billion is earmarked for financial support. The text of the proposal already contains a loophole for Ukrainian leaders, arguing that Ukraine is a state at war, whose ability to defend its territory could depend on the rapid availability of a certain commodity.
The bill was presented at a press conference held by European Commission President Ursula von der Leyen and Commissioner for Economic Affairs Valdis Dombrovskis. The Commissioner stated that the loan will safeguard Ukraine's financial stability and strengthen its ability to continue the war. He also stated that the loan has no maturity date, so there is no repayment plan that would commit Ukraine to repaying the funds obtained. Dombrovskis also stated that interest on the loan is expected to amount to EUR3 billion per year, equivalent to 1.44% of Ukraine's 2025 GDP-a huge sum considering that the Ukrainian state already survives thanks to funding from its allies. Understandably, given this context, media outlets are unclear as to who will actually pay the interest on Ukraine's debt.
No figures were provided for the cost of the European Union's use of the financial market to cover this loan. Furthermore, the financial market's response and the international consequences are the main question marks surrounding the initiative to support the war in Ukraine.
Financial markets have, at this stage, registered opposition to an excessive supply of government bonds, reducing their value and demanding higher interest rates on capital, while military bonds and stocks are doing very well. The German example helps explain the mechanism. In the early months of 2025, Chancellor-designate Merz announced the issuance of government bonds linked to rearmament and infrastructure. This announcement resulted in the highest spread between the market value and nominal value of Bunds since 1990 and the worst increase in Bund interest rates since 1997. All this despite the Chancellor's having served on the European board of Black Rock, one of the world's leading investment management services providers, with a historical preference for German Bunds, so much so that he managed an ETF (investment fund linked to a stock index) specifically on government bonds issued by Berlin.
Two reasons explain the poor performance of German government bonds: first, as already mentioned, financial markets anticipate an excessively high overall supply of bonds, which lowers the value of capital and increases interest rates; second, hedge funds, asset managers, banks, and offshore markets have fueled the trend by betting against German Bunds, despite Black Rock's sponsorship of Merz, in a classic form of financial warfare predation. The European Union's further action could provoke reactions from other major debtors, primarily the United States, which supports its imperial policy with continued issuance of government bonds, and not only from market mechanisms.
Recourse to the market has already been tested through the instruments introduced by the European Commission to address the economic and social impacts of the pandemic emergency: NextGenEU and SURE (Support to Mitigate Unemployment Risks in an Emergency). A significant difference between the instruments adopted during the pandemic emergency and the European Union bond issuance to finance the war in Ukraine is that the former were interventions aimed at supporting the European economy and the purchasing power of the most vulnerable segments of society. The return was guaranteed by the benefits to businesses and consumers and the immediate impact on the economy. Regarding the loan to Ukraine, however, the return is uncertain, and the benefit to the European economy essentially depends on the goodwill of the Kiev government.
Another important difference compared to the pandemic period concerns the different sentiment experienced by financial markets. With NextGenEU, the markets received a bond issuance that finance needed. Today, however, as demonstrated by the German Bund issue created under the auspices of BlackRock, the forecast of instability dominates. Therefore, the issue is not whether the bond issuance is national or mutualized, but rather the very issuance of bonds in large quantities that risks fueling financial wars, in addition to fueling the war on the ground in Ukraine.
To understand the scale of this potential financial war, consider that in 2024, EUR437 billion of accumulated European capital was invested in the United States, a sum equal to 40% of the federal budget deficit. Every new bond issuance, especially large ones, such as those planned for the loan to Ukraine and to finance ReArm EU (EUR150 billion so far), is viewed as a red herring by those who pursue an imperial policy and seek to rake in every available resource for that purpose. The European Union's new issuances pose a threat to the US administration, both because they divert part of European capital directed overseas and because they cause increased demand for money. This, in turn, can only impact interest rates, pushing them higher, at a time when Trump is using every means, legal or otherwise, to force the Federal Reserve to lower rates. Finally, rising interest rates, accompanied by the increase in the money supply generated by new issuances, are bound to have an impact on inflation, quickly causing consumer prices to rise.
These negative considerations are certainly not unknown to the leaders of the European Commission. So why did they embark on such a risky operation? From the beginning of the war in Ukraine, the European Commission and almost all EU member states have sided with Ukraine against Russia. In the aftermath of the Russian aggression in February 2022, European governments supported the Zelensky administration with weapons and funding. According to the Ukraine Support Group at the Kiel Institute for World Economy, the European Union and its member states have authorized over EUR216 billion in financing for Ukraine until December 2025. European governments have no hope of seeing this money back anytime soon. According to media sources, the draft law for the EUR90 billion loan states: "The European Union reserves the right to use frozen Russian assets to repay the loan, in full compliance with European Union and international law."
As the conference of European governments that initiated the loan process for Ukraine demonstrated, this is an impassable path. The problems arise not only from violations of international law or potential Russian retaliation, but from specific economic obstacles.
The frozen Russian funds in Europe amount to approximately EUR200 billion; of these, EUR185 billion are held by the Belgian company Euroclear, which clears financial transactions. In this sense, it can be considered a "notary," an essential infrastructure for the financial market that operates on the basis of the trust of market participants.
The company was founded as a branch of Morgan Stanley in the late 1960s; in 2000, Euroclear became an independent company, separate from JPMorgan Chase, and in 2018, it moved its headquarters from London to Brussels due to the United Kingdom's exit from the European Union.
Euroclear claims to manage EUR41 trillion in assets (equivalent to nearly half of global gross domestic product) and transacts over $1 trillion annually. The company's importance to Belgium is clear, given that the country's gross domestic product is EUR600 billion. Any confiscation of Russian assets would undermine the confidence of major investors in Euroclear, paving the way for the company's bankruptcy and unemployment for its approximately 4,400 Belgian employees.
Support for Ukraine has proven to be a trap for the European Union and its member state governments. A peace agreement without adequate reparations from Russia would force these institutions to explain to their citizens why, against the will of the electorate, they fueled a war that has caused hundreds of thousands of deaths and incalculable destruction, throwing away over $200 billion.
European institutions and individual states find themselves in the position of a poker player forced to make ever higher bets in the hope of winning a pot that will repay their losses. The other players at the table-Trump, Putin, Zelensky-have every interest in their failure.
Polycarp
https://umanitanova.org/rilancio-a-perdere-ucraina-ancora-un-prestito-per-il-massacro/
_________________________________________
Link: (en) Italy, FAI, Umanita Nova #2-26 - A losing relaunch. Ukraine: Another loan for the massacre (ca, de, it, pt, tr)[machine translation]
Source: A-infos-en@ainfos.ca
Geen opmerkingen:
Een reactie posten