EU disagreements persist on how to help Ukraine

By
Pieter Cleppe
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As Ukrainian peace talks continue, on Friday, a major legal breach of the EU Treaty occurred. The EU Council of Member States agreed with the European Commission’s proposal to decide the extension of a freeze on Russian assets held in the EU by qualified majority voting (QMV), instead of by unanimity, as was practised before for decisions related to sanctions. As a result, Hungary and Slovakia were outvoted, and also the European Parliament was deprived of its right to have a say.

The debate surrounding Belgium, which holds most of the assets through the Brussels-based depository Euroclear, resisting a European Commission plan to effectively seize the assets, is not even at the core of the problem here.

“Rechtsbruch in Brussels”

The key issue at stake is the absolute disrespect for the letter of the EU Treaty not only shown by the European Commission, but also by the Member States that went along with this.

To enable qualified majority voting, the European Commission claimed that there was some kind of “emergency” that would justify activating article 122 of the EU Treaty, so to indefinitely freeze the Russian assets, as long as a number of conditions are fulfilled.

This Treaty article foresees the following:

“ (…) the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.”

The European Commission has justified the use of this article by claiming that “Preventing that funds are transferred to Russia is urgently required to limit the damage to the Union’s economy.”  

Regardless of the merits of freezing these assets or even of the question whether there would be an economic emergency, EU Law Professor Cristina Vanberghen stresses: “Article 122 is an economic-policy tool—not a foreign-policy or sanctions instrument. Freezing a third country’s sovereign reserves is, by definition, a restrictive measure governed by Article 215 TFEU, which requires unanimity under the Common foreign and security policy (CFSP).”

Article 122 is incredibly controversial and they know it. Yet, they went ahead. Belgium ultimately also went along with it, as otherwise, the likes Hungary would in the future have been able to saddle Belgium with massive risks, by simply vetoing an extension of the freezing of the Russian assets – in case the EU Commission manages to push through its plan to leverage these assets. Beforehand, Belgian PM De Wever did point at the legal risks of using article 122.

In 2022, the German Constitutional Court has warned about the legality of using Article 122 as a basis for the Covid Recovery Fund, which was later sharply criticised by the EU Court of Auditors. 

None of it seems to matter. “When things get serious, you have to lie”, former European Commission President Jean-Claude Juncker once proclaimed, during the euro crisis, when accusations of legal violations – “Rechtsbruch” – in the context of Eurozone bailouts, mostly out of Germany, were flatly ignored. It should not surprise anyone that the EU’s own top court – a hotbed of judicial activism – was the least concerned of all.

The attention has now shifted to whether Belgium could be outvoted when it comes to the EU Commission’s “reparations loan” plan for Ukraine, whereby the frozen Russian assets would be used as collateral, not on the basis of article 122 of the EU Treaty, but on the basis of article 212, which is legally cleaner. Diplomats however claim this is politically unsustainable. Belgium has opened up to this plan, but it demands bilateral guarantees from EU member states. Apart from Germany, few member states seem to be open to grant those guarantees. Belgium’s alternative – let the EU borrow money on capital markets to fund Ukraine, secured against unallocated funds (headroom) in the EU budget – will likely face a veto from at least one government.

The debate is on how to help Ukraine, not whether to help Ukraine

As Italy now also supports the Belgian stance, the whole thing may fail this week. That ultimately only leaves one remaining option: That a coalition of willing European democracies send the financial resources to Ukraine they are willing to send. European democracies claim they want to help Ukraine, so if they mean it, they should do so.

This is much cleaner than undermining support in the rule of law in Europe through confiscation of Euroclear assets, which also exposes Belgium to legal risks and signifies a long term threat to parking one’s assets in Europe. It is no coincidence to witness non-Western Central Banks loading up on gold since the freezing of the Russian assets in 2022.

It has now been proven that financial support to Ukraine actually does help the country. So far, the West has been able to provide them with arms while avoiding a direct conflict with Russia. In this respect, the option to continue with this strategy – in combination with attempts to try to get some kind of ceasefire arrangement with Russia – is the best option. The fact that the countries closest to Russia also contribute the most is in that respect merely a reflection of the democratic support governments enjoy to support Ukraine. Nobody can deny this democratic support is greater in Finland than in Spain, which obviously is a mere reflection of history and geography.

Failing sanctions

As opposed to financial and military support, sanctions, on the other hand, have completely failed to help Ukraine, as it managed to keep Russia at bay to some degree. That the Russian ruble has gained 48.7% on the US Dollar this year and that it stands at a three year high, is only one indication. The fact that we are already at the 19th package of EU sanctions against Russia should hopefully also make great proponents of this policy instrument pause.

Even if Russia’s state budget is being affected as a result of the sanctions, the war simply remains a priority for Russian President Putin, who may be in a bad place after his invasion, even if he may try to portray it as a win. Questions could finally be asked in Moscow. Putin will therefore most certainly treat spending for war as the absolutely priority.

It has been widely documented how countries like Kyrgyzstan, Kazakhstan, Belarus, and Uzbekistan have effectively turned into transit hubs for Russia. After China and India, NATO member state Turkey is the third greatest importer of Russian fossil fuels since January 2023. It begs the question why the West is even harming itself with pointless sanctions, that have equally failed to produce a lot of geopolitical benefits in all kinds of other geopolitical contexts, from Cuba and Iran over Saddam’s Iraq to North Korea. Yes, sanctions manage to impoverish the population, but ultimately, they benefit the regime.   

In her book entitled ‘Backfire’, French policy analyst Agathe Demarais takes a closer look at sanctions as a policy instrument. She provides an overview of the unintended side effects of modern – American – sanctions and export controls, describing the innovative techniques used by regimes to circumvent such sanctions.

In sum, sanctions against Russia have so far failed to contain Putin, unlike arms supplies to Ukraine, but despite this, politicians continue to double down on the former while dithering on the latter.

Ever more sanctions

Those supporting ever more stringent sanctions carry the burden of proof that those will ultimately help Ukraine, but they rarely make the case why it will work this time around. The EU simply continues to double down on sanctions, effectively doing the same and expecting different results. On 3 December, the EU committed to end all imports of Russian natural gas by September 2027 – in particular Russian LNG, 15 percent of which still comes from Russia. The Economist notes that the EU however continues to buy Russian fertiliser that is made from natural gas. Even, “more of it, for some types, than before the war.”

The explanation is simple. Before the Russian invasion of Ukraine, Europe had about 120 fertiliser plants that covered 70% of its nitrogen needs, many using Russian gas or ammonia. When pipeline gas stopped and prices spiked, EU production dropped by around 70%. Today maybe half that capacity is back online.

This is a good example showing how sanctions could backfire. To produce fertiliser, cheap energy is needed. Unintentionally, by raising energy prices due to lower Russian energy imports, the EU became more dependent on Russia for energy-intensive products, like fertiliser.

Sanctioning Russian fertiliser, like some have called for, on top of the increased tariffs for the product, may in turn come with unintended consequences. In fact, already in March 2022, uncertainty surrounding the issue forced EuroChem Group, one of the world’s largest fertiliser producers, to shut down the company’s plant in Antwerp, also causing raw material deliveries from chemical giant BASF to be halted. As a result, nearly 400 employees were left idle, and it took several months for Belgian authorities to confirm that the company was not subject to EU sanctions, allowing operations to resume.

Also outside of the industrial sector, in agriculture, the effects could be considerable. The Economist notes that the reason why the EU has not yet imposed sanctions on fertiliser imports is “largely down to its beleaguered farmers. Fertilisers constitute 15-30% of their input costs. Those costs rose significantly between 2020 and 2025 due to the covid pandemic and wars in Ukraine and the Middle East. Meanwhile grain and produce prices have fallen. In 2024 protesting farmers drove convoys of tractors into several European capitals, including Brussels. The EU fears that disrupting the fertiliser supply would again expose it to their wrath.”

This week, on Thursday, a large farmers protest is once again planned in Brussels, with more than 10.000 farmers expected to rally against EU agricultural policy, from proposed reforms to EU spending to the trade deal with Latin American trade bloc Mercosur. Extra sanctions for fertiliser may not exactly make them any happier, especially as the EU would embark on this without enabling European domestic fertiliser production. For that, it is not only necessary to drastically lower EU energy prices, which requires scrapping large parts of EU climate policy, in particular the climate taxation scheme ETS. The Economist notes that at the moment, “investors are reluctant to back more European production, in part because of the EU’s costly environmental rules.” Using the chainsaw of deregulation is therefore the absolute prerequisite to do this responsibly.

It should be noted that importing fertiliser from alternative suppliers, like Egypt and Algeria, is also tricky. Fertiliser imports from there are scheduled to become more expensive from the 1st of January, when the EU’s protectionist “carbon border adjustment mechanism” (CBAM), which imposes new climate tariffs on certain energy-intensive imports into the EU, kicks in. Farmer lobbies have lamented that “the introduction of the CBAM mechanism in 2026 will put pressure on the European agricultural sector due to rising costs and uncertainty.” Somehow, the climate policy arm of the EU is obstructing the sanctions wielding arm.

It would be funny if it weren’t all so tragic.  

 

 

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