Belgium is Right: Borrow… Get the Money… Don’t Get Emotional

Belgian Prime Minister Bart De Wever and the Belgian government are absolutely right in proposing that the EU should borrow the money required to sustain Ukraine in its valiant fight against Russia’s illegal war, instead of creating a massive systemic risk for Belgium, the Euro, the credibility of the eurozone, and that of Euroclear.

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            Belgium is right: Borrow… get the money… don’t get emotional

Belgian Prime Minister Bart De Wever and the Belgian government are absolutely right in insisting on cast iron guarantees should the EU proceed with its current proposal for the use of the Russian assets at Euroclear. Mutualising this massive liability, for it is a liability, is both fair as well as a practical necessary measure to ensure that the risks are to a certain extent mitigated. It is quite odd that such a reasonable and practical measure has not been adopted by the EU and the Member States. When a member state, in this case Belgium, acts in the broader interest of European security, Europe should also act to protect that member state’s security. In this instance, Europe should also be mindful of preserving the stability and credibility of the eurozone. 

Prime Minister De Wever and Foreign Minister Prevot (in his statement to the assembled press on 03 December)  are also right in proposing that the EU, having failed to mutualise Belgium’s current as well as possible contingent liabilities, should instead borrow the money required to sustain Ukraine in its valiant fight against Russia’s illegal war of aggression, instead of creating a massive systemic risk for Belgium, potentially for the Euro, the credibility of the eurozone, and that of Euroclear. It is rank inexplicable that Belgium is expected to shoulder a massive European and NATO risk on its own, without the EU and NATO mutualising the resultant risks and possibly obligations and damages. Why, for example, wouldn’t Norway’s sovereign wealth fund and others provide simultaneous guarantees to repay the full amount equivalent to the utilised Russian assets in the event that an agreement is reached on the cessation of hostilities between Ukraine and Russia? Russia is likely to demand its money back at that point. How would Belgium cough up €140 billion overnight if that money has already been utilised?  What about damages and compensation to be paid by Belgium and EuroClear should that be so adjudicated at a later stage? What if other central banks and investors withdraw their funds for fear that they will be next in line fearing their funds will be utilised by political, rather than legal decisions? What if the bond markets are spooked leading to higher costs of borrowing for the member states at a time of austerity?

The EU, and member states, should’ve kept their eyes on the money by designing and adopting technical financial markets solutions that operate within the Rules of the Game of the International Monetary System and international law. They should’ve listened to market technocrats rather than veer into political options that are at odds with technical financial markets solutions. The mantra should’ve been: Borrow the money. Period.

Mixing the issue of how to utilise the Russian assets at Euroclear with any eventual war reparations was a political not a technical project. The proposals should’ve stuck to boring technical detail rather than premature and inadequately thought through political statements. This inadequacy was further compounded by the member states and NATO allies being unwilling to provide cast iron guarantees to Belgium, particularly at a time when the US is eyeing the assets and how to profit from them.

The Belgian government is absolutely right in its course of action. The EU should borrow the money. This can be achieved through a long dated bond underwritten by the European Investment Bank (EIB). The bond issue can be led-managed also by the EIB. The member states should be asked to underwrite portions of that bond to cover the whole issue and make the EU whole. That way the EU (and crucially the financial markets and global participants in them) will have guarantees that the money will be repaid on maturity thus fulfilling its legal obligations vis-à-vis the owner of the assets and therefore complying with the Rules of the Game of the International Monetary System – and the funds so raised can then be lent to Ukraine.

By proposing borrowing the funds, Belgium is not only protecting itself. It is also protecting Europe’s fundamental and long term interests at a critical moment. The way to follow is to focus on technical financial markets structures.

(Photo credit: Wiki Commons)