December 1, 2023


EU countries and the Commission remain deadlocked over who should provide guarantees for a European Central Bank-run scheme to convert Ukrainian refugees’ cash into local currencies.

The upshot for the millions fleeing the war is that they have no means to convert their savings.

The issue of how to convert Ukrainian hryvnia into euros or other EU currencies has been discussed among EU leaders since early March, as reported by POLITICO, but no solution has been found yet. At issue is the National Bank of Ukraine’s current inability to provide the collateral that would cover potential losses.

For now, the ECB has presented the Commission with two options to move forward, according to a paper seen by POLITICO Tuesday.

Under option one, which the central bank prefers, EU countries would give a mandate to the ECB to work with EU countries’ central banks to convert the hryvnia. To get around the bloc’s prohibition on monetary financing — when a central bank provides fiscal support to states — the EU must “provide [the ECB and EU central banks] with the resources to fulfil the mandate,” the ECB wrote.

In other words, the EU would have to provide the collateral for the currency exchange to cover for potential losses.

Notably, the scheme could be extended to non-eurozone countries, which at present host the majority of Ukrainian refugees — over 2.3 million in Poland, over 600,000 in Romania, nearly 360,000 in Hungary, according to the United Nations

Then there’s the ECB’s option two, which would see the National Bank of Ukraine give a mandate to the ECB under a different legal basis. This route would get around the monetary financing prohibition as “the prohibition of monetary financing does not preclude an agency arrangement between the [National Bank of Ukraine] and the ECB/Eurosystem, as the [National Bank of Ukraine] is not part of the public sector,” the bank wrote. Option two would also require the EU to act as guarantor.

But the underlying fight is over who should provide that collateral, which is estimated to come to a €300-400 million guarantee, according to one official with knowledge of the discussion.

There’s two options: The Commission could act as guarantor through the EU budget. That option has broad support by EU countries and the ECB— but the Commission resists that, arguing that the EU budget is already stretched, according to central bank and Commission officials and diplomats POLITICO spoke with.

Alternatively, EU countries would provide the collateral from their own budgets. But that process can be weeks or even months long, as budgetary guarantees require parliamentary sign off in many EU countries.

“To be quite honest it’s simpler if it’s the European budget, because coordinating national budgets [is] pretty complex,” said a senior EU diplomat. “But the European budget isn’t easy either, because it’s in great demand at the moment.”

“We’ve identified the needs but we haven’t got a solution,” the diplomat added.

A Commission spokesperson failed to reply to why the EU executive won’t provide guarantees from its own budget pot, but said the Commission is in contact with the ECB and EU countries’ central banks “to find a solutions and in order to show our solidarity also in that respect to Ukrainian refugees.”

The issue is likely to be discussed at ministerial level by EU finance ministers meeting next week in Luxembourg.


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