How Norway can help Ukraine obtain a "reparation loan"
As the European Union tries to put together a large loan for Ukraine, sovereign guarantees and the risk they pose to member states' credit ratings have become a stumbling block.
Read more about the issue and how it could be resolved in the column by professors Håvard Halland and Knut Anton Mork: Guarantees that could give EU resolve: how Norway’s help could be decisive for Ukraine.
The authors remind readers that the EU’s plan is to extend Ukraine an interest-free €140 billion loan secured against immobilised Russian assets held by the Belgian central securities depository, Euroclear.
"But the scheme needs additional backing by sovereign guarantees, and therein lies the problem," Halland and Mork emphasise.
According to them, for highly indebted EU member countries, including France, taking on additional contingent liabilities could pose a risk to sovereign credit ratings, with potentially costly implications for debt servicing.
A loan for Ukraine thus hangs on reassuring member states that ratings agencies won’t view their guarantees as accruing to their debts.
"Ensuring that the envisioned loan to Ukraine does not impinge on the continent’s aggregate debt burden therefore is in everyone’s interest," the experts stress.
In their view, Norway, while not an EU member, could play a decisive role. It boasts the most solid AAA bond rating in Europe – and arguably anywhere – owing to its $2 trillion sovereign wealth fund and robust institutions.
Halland and Mork argue that Oslo could singlehandedly take on the contingent liability associated with fresh Ukrainian debt, and without a dent to its credit rating.
They point out that Norway’s government would both strengthen Ukraine’s defences against a revanchist aggressor and reduce financial risks to its European allies’ rearmament efforts. Yet these windfalls were a direct consequence of the spike in energy prices caused by Russia’s war on Ukraine.
The authors suggest that Norway could take on the contingent obligation directly, thereby dispelling its image as a country profiting from the war – or at least act as a backup guarantor.
"Norway’s cynical stinginess on Ukraine has damaged its global reputation, not least in the eyes of neighbouring Scandinavian countries. While its allocations to Ukraine have increased recently, they remain a fraction of the full amount of its war profits," the professors write.
This article originally appeared on Project Syndicate and is republished with permission from the copyright holder.