Why EU countries are nervous about funding a US loan to Ukraine

Good morning. A scoop to start: Gazprom will probably need more than a decade to recover gas sales lost to European markets as a result of Russia’s full-scale invasion of Ukraine, according to a confidential internal report seen by the FT.

Today, our finance correspondent previews the EU discussion over whether to back a US loan to Ukraine, and our climate correspondent asks whether yesterday’s tame farmers’ rally in Brussels marked the end of their successful protest season.

Listen to the last two episodes of Untold: Power for Sale, a podcast series from the Financial Times looking into Qatargate, an alleged corruption scandal that exposed major flaws in how European democracy works. Available on Apple Podcasts, Spotify or wherever you get your podcasts.

Moneyball

Should the EU agree to repay a US loan to Kyiv using future cash siphoned off from immobilised Russian sovereign assets? That’s the question being weighed up by the bloc’s finance ministers today, writes Paola Tamma.

Context: EU finance ministers meeting virtually today are weighing up a US proposal to advance cash to Ukraine with a loan leveraged against the forthcoming profits derived from Kremlin assets immobilised in the wake of its full-scale invasion of Ukraine in February 2022. Most of that cash pile is in the EU.

Any such scheme would need the backing of all EU countries. That’s already a tall order, but there’s more: Even if member states give their blessing to the scheme being discussed by G7 countries, a requirement to unanimously renew sanctions every six months would give any government in the bloc a chance to halt the scheme, with potentially ugly consequences for Ukraine and western credibility.

According to a leaked discussion paper for today’s meeting, Washington could issue the loan if the EU finds a way to get around this twice-yearly confirmation. This would also require unanimous approval.

Aside from vetoes, there are other issues making some capitals this side of the pond nervous about backing the US scheme: crucially, who would be on the hook if the profits from Russian assets, which are meant to repay the loan, fall short of the total loan value. That’s not impossible given that once interest rates start coming down, the proceeds will slow.

The burden sharing between the US, other G7 countries and the EU is at the crux of finance ministers’ discussions today, with some arguing the EU cannot underwrite US debt, especially in view of US elections and potentially unpredictable US policy on Ukraine.

“There is a possible change in the US leadership in a couple of months, everything you do needs to be Trump-proof,” said one EU official briefed on the talks.

Chart du jour: Relenting

The Eurozone is set for a much-needed economic boost tomorrow, when the European Central Bank is expected to start cutting interest rates for the first time in almost five years. 

Lonely furrow

The distant sound of tractor horns in Brussels yesterday was but a quiet echo of the firecrackers and burning manure that defined the far larger farmers protests earlier this year, writes Alice Hancock.

Context: Farmers have been taking to the streets of Europe for more than a year. Demonstrations reached a high point in February with thousands of tractors blockading roads in France, Romania, Germany, Spain, Poland and the Netherlands.

The response to those protests was a rapid slashing of environmental standards required for farmers to access EU subsidies, which account for around a third of the bloc’s total budget.

But yesterday’s protests, planned on the eve of EU elections to make a point about small farmers going out of business, resulted in little to nothing.

About 500 tractors gathered near the space-age Atomium building on the northern edge of Brussels, organised by a Dutch group called the Farmers Defence Force. But only a few tractors made it to the city’s European quarter, where the EU institutions are situated. More police and riot barricades appeared to be present than demonstrators themselves.

MCC Brussels, a think-tank backed by Hungarian premier Viktor Orbán, supported the effort but denied that it was in any way linked to far-right bodies trying to instrumentalise farmers ahead of the June 6-9 ballot.

“Farmers are fighting to defend their way of life. They are opposed to many policies imposed on them by the EU, and therefore, they have naturally decided to focus their protest against Brussels,” MCC Brussels said.

A senior EU diplomat said the biggest fight would come under the new European Commission, when the next agricultural subsidies have to be agreed. Despite several ministers pushing for more funding to quell future protests, the likelihood of that is “peanuts”, they said.

What to watch today

1. Eurogroup meets via video call.

2. Nato secretary-general Jens Stoltenberg meets Finnish President Alexander Stubb.

3. Italian Prime Minister Giorgia Meloni visits future asylum centres in Albania.

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