Russia’s central bank on Friday filed a lawsuit in Moscow against Brussels-based Euroclear, which houses most of the frozen Russian assets that the EU wants to use to finance aid to Ukraine. The court filing comes just days before a high-stakes European Council summit, where EU leaders are expected to press Belgium to unlock billions of euros in Russian assets to underpin a major loan package for Kyiv.   “Due to the unlawful actions of the Euroclear depository that are causing losses to the Bank of Russia, and in light of mechanisms officially under consideration by the European Commission for the direct or indirect use of the Bank of Russia’s assets without its consent, the Bank of Russia is filing a claim in the Moscow Arbitration Court against the Euroclear depository to recover the losses incurred,” the central bank said in a statement. Belgium has opposed the use of sovereign Russian assets over concerns that the country may eventually be required to pay the money back to Moscow on its own. Some €185 billion in frozen Russian assets are under the stewardship of Euroclear, the Brussels-based financial depository, while another €25 billion is scattered across the EU in private bank accounts. With the future of the prospective loan still hanging in the air, EU ambassadors on Thursday handed emergency powers to the European Commission to keep Russian state assets permanently frozen. Such a solution would mean the assets remain blocked until the Kremlin pays post-war reparations to Ukraine, significantly reducing the possibility that pro-Russian countries like Hungary or Slovakia would hand back the frozen funds to Russia. While Russian courts have little power to force the handover of Euroclear’s euro or dollar assets held in Belgium, they do have the power to take retaliatory action against Euroclear balances held in Russian financial institutions. However, in 2024 the European Commission introduced a legal mechanism to compensate Euroclear for losses incurred in Russia due to its compliance with Western sanctions — effectively neutralizing the economic effects of Russia’s retaliation. Euroclear declined to comment.

BRUSSELS — European banks and other finance firms should decrease their reliance on American tech companies for digital services, a top national supervisor has said. In an interview with POLITICO, Steven Maijoor, the Dutch central bank’s chair of supervision, said the “small number of suppliers” providing digital services to many European finance companies can pose a “concentration risk.” “If one of those suppliers is not able to supply, you can have major operational problems,” Maijoor said. The intervention comes as Europe’s politicians and industries grapple with the continent’s near-total dependence on U.S. technology for digital services ranging from cloud computing to software. The dominance of American companies has come into sharp focus following a decline in transatlantic relations under U.S. President Donald Trump. While the market for European tech services isn’t nearly as developed as in the U.S. — making it difficult for banks to switch — the continent “should start to try to develop this European environment” for financial stability and the sake of its economic success, Maijoor said. European banks being locked in to contracts with U.S. providers “will ultimately also affect their competitiveness,” Maijoor said. Dutch supervisors recently authored a report on the systemic risks posed by tech dependence in finance. Dutch lender Amsterdam Trade Bank collapsed in 2023 after its parent company was placed on the U.S. sanctions list and its American IT provider withdrew online data storage services, in one of the sharpest examples of the impact on companies that see their tech withdrawn. Similarly a 2024 outage of American cybersecurity company CrowdStrike highlighted the European finance sector’s vulnerabilities to operational risks from tech providers, the EU’s banking watchdog said in a post-mortem on the outage. In his intervention, Maijoor pointed to an EU law governing the operational reliability of banks — the Digital Operational Resilience Act (DORA) — as one factor that may be worsening the problem. Those rules govern finance firms’ outsourcing of IT functions such as cloud provision, and designate a list of “critical” tech service providers subject to extra oversight, including Amazon Web Services, Google Cloud, Microsoft and Oracle. DORA, and other EU financial regulation, may be “inadvertently nudging financial institutions towards the largest digital service suppliers,” which wouldn’t be European, Maijoor said. “If you simply look at quality, reliability, security … there’s a very big chance that you will end up with the largest digital service suppliers from outside Europe,” he said. The bloc could reassess the regulatory approach to beat the risks, Maijoor said. “DORA currently is an oversight approach, which is not as strong in terms of requirements and enforcement options as regular supervision,” he said. The Dutch supervisors are pushing for changes, writing that they are examining whether financial regulation and supervision in the EU creates barriers to choosing European IT providers, and that identified issues “may prompt policy initiatives in the European context.” They are asking EU governments and supervisors “to evaluate whether DORA sufficiently enhances resilience to geopolitical risks and, if not, to consider issuing further guidance,” adding they “see opportunities to strengthen DORA as needed,” including through more enforcement and more explicit requirements around managing geopolitical risks. Europe could also set up a cloud watchdog across industries to mitigate the risks of dependence on U.S. tech service providers, which are “also very important for other parts of the economy like energy and telecoms,” Maijoor said. “Wouldn’t there be a case for supervision more generally of these hyperscalers, cloud service providers, as they are so important for major parts of the economy?” The European Commission declined to respond.

The discussion surrounding the digital euro is strategically important to Europe. On Dec. 12, the EU finance ministers are aiming to agree on a general approach regarding the dossier. This sets out the European Council’s official position and thus represents a major political milestone for the European Council ahead of the trilogue negotiations. We want to be sure that, in this process, the project will be subject to critical analysis that is objective and nuanced and takes account of the long-term interests of Europe and its people. > We do not want the debate to fundamentally call the digital euro into question > but rather to refine the specific details in such a way that opportunities can > be seized. We regard the following points as particularly important: * maintaining European sovereignty at the customer interface; * avoiding a parallel infrastructure that inhibits innovation; and * safeguarding the stability of the financial markets by imposing clear holding limits. We do not want the debate to fundamentally call the digital euro into question but rather to refine the specific details in such a way that opportunities can be seized and, at the same time, risks can be avoided. Opportunities of the digital euro:  1. European resilience and sovereignty in payments processing: as a public-sector means of payment that is accepted across Europe, the digital euro can reduce reliance on non-European card systems and big-tech wallets, provided that a firmly European design is adopted and it is embedded in the existing structures of banks and savings banks and can thus be directly linked to customers’ existing accounts. 2. Supplement to cash and private-sector digital payments: as a central bank digital currency, the digital euro can offer an additional, state-backed payment option, especially when it is held in a digital wallet and can also be used for e-commerce use cases (a compromise proposed by the European Parliament’s main rapporteur for the digital euro, Fernando Navarrete). This would further strengthen people’s freedom of choice in the payment sphere. 3. Catalyst for innovation in the European market: if integrated into banking apps and designed in accordance with the compromises proposed by Navarrete (see point 2), the digital euro can promote innovation in retail payments, support new European payment ecosystems, and simplify cross-border payments. > The burden of investment and the risk resulting from introducing the digital > euro will be disproportionately borne by banks and savings banks. Risks of the current configuration: 1. Risk of creating a gateway for US providers: in the configuration currently planned, the digital euro provides US and other non-European tech and payment companies with access to the customer interface, customer data and payment infrastructure without any of the regulatory obligations and costs that only European providers face. This goes against the objective of digital sovereignty. 2. State parallel infrastructures weaken the market and innovation: the European Central Bank (ECB) is planning not just two new sets of infrastructure but also its own product for end customers (through an app). An administrative body has neither the market experience nor the customer access that banks and payment providers do. At the same time, the ECB is removing the tried-and-tested allocation of roles between the central bank and private sector. Furthermore, the Eurosystem’s digital euro project will tie up urgently required development capacity for many years and thereby further exacerbate Europe’s competitive disadvantage. The burden of investment and the risk resulting from introducing the digital euro will be disproportionately borne by banks and savings banks. In any case, the banks and savings banks have already developed a European market solution, Wero, which is currently coming onto the market. The digital euro needs to strengthen rather than weaken this European-led payment method. 3. Risks for financial stability and lending: without clear holding limits, there is a risk of uncontrolled transfers of deposits from banks and savings banks into holdings of digital euros. Deposits are the backbone of lending; large-scale outflows would weaken both the funding of the real economy – especially small and medium-sized enterprises – and the stability of the system. Holding limits must therefore be based on usual payment needs and be subject to binding regulations. -------------------------------------------------------------------------------- Disclaimer POLITICAL ADVERTISEMENT * The sponsor is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany * The ultimate controlling entity is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany More information here.

The European Parliament could have an early say in the race for the European Central Bank vice presidency, a win for lawmakers after years of pushing for more influence over the EU’s top appointments. Eurozone finance ministers will begin the process of selecting a successor to Luis de Guindos on Thursday, according to a draft timeline seen by POLITICO and an EU diplomat who separately confirmed the document’s content. The deadline for submitting candidates will be in early January, although an exact date is still to be agreed.  According to the document, members of the Economic and Monetary Affairs Committee will have the right to hold in-camera hearings with all the candidates in January before the Eurogroup formally proposes a name to the European Council for appointment. This would mark a break with the past, when MEPs only got involved in the process after ministers had already had their say. Involving the Parliament at an earlier stage could influence the selection process, for example by giving it the chance to press for adequate gender balance in the list of candidates. This had been one of the Parliament’s demands in its latest annual report on the ECB’s activities. “The Parliament will play a stronger role this time,” the diplomat told POLITICO. So far, only Greece is considering proposing a woman for the vice president slot: Christina Papaconstantinou, who is currently deputy governor at the C. Finland, Latvia, Croatia and Portugal are all set to propose male candidates. The candidate picked by ministers will return to lawmakers for an official hearing, which should take place between March and April, according to the document. MEPs have limited power over the final appointment, but they will issue a nonbinding opinion, which is then adopted through a plenary vote. The new vice president will be formally appointed by the European Council in May, before taking office on June 1. So far, only Greece is considering proposing a woman for the vice president slot. | Aris Messinis/Getty Images The vice president’s position is the first of four to come up for rotation at the ECB’s Executive Board over the next two years. It wasn’t immediately clear if the other three appointments — including the one for a new president — will give the lawmakers the same degree of influence. CORRECTION: This article was updated on Dec. 9 to correct the spelling of the surname of the deputy governor of the Bank of Greece.

Giorgia Meloni’s Brothers of Italy party is picking a fight with the country’s influential central bank over gold reserves, stepping up a conflict between the government and the country’s technocratic elite. Last month, Lucio Malan, who is chief whip for the Brothers of Italy in the Senate and a close ally of Meloni, introduced an amendment to the 2026 budget that would assert the Italian state’s ownership of close to €290 billion worth of gold reserves held by the Bank of Italy.  At first glance, it seems clear enough why this amendment came into being. Italy has a staggering amount of debt on its books, around 140 percent of the national gross domestic product, and is under strict EU orders to rein in its deficit, resulting in a perennial budget squeeze.  So it might seem logical to raid the world’s third-largest reserve of gold to pay down Europe’s second-largest debt pile. The temptation to do so has been getting stronger by the day: The value of the Bank’s hoard has risen 60 percent over the past year, thanks to a global rally driven largely by other central banks’ buying. But as usual in Italy, it’s not so simple. For one, the amendment doesn’t imply putting the gold to any specific use, but merely claims that the gold is property of the Italian people. “Nothing is going to be transferred,” Malan himself told POLITICO over the weekend. “That gold has always belonged to the Italian people, and that’s going to stay the same.” He pushed back at “even the most distant hypothesis that even the smallest part of the gold reserves are going to be sold off.”  Just as well. Three previous prime ministers — Romano Prodi, Silvio Berlusconi and Giuseppe Conte — have all had a sniff at similar schemes to bring the gold under more direct government control. But those schemes — the last of which was only six years ago — all foundered on the objections of the European Central Bank. The ECB published a withering opinion on the legality of the proposal on Wednesday, bluntly reminding Rome that the EU Treaty gives the Eurosystem exclusive rights over holding and managing the foreign reserves of those countries that use the euro (and pointing out that it said exactly the same thing six years ago). “This proposal has no chance of materializing,” said Lucio Pench, a professor specializing in economic governance and a fellow at the think tank Bruegel, pointing to the “clear conflict” with the EU treaty. But if the amendment is essentially just gesture politics, the question arises — what exactly is its purpose? A SHOT ACROSS THE BOW Some see in it a warning shot at the Bank of Italy, arguing that Malan, as Meloni’s chief Senate whip, is unlikely to have acted without the premier’s consent (Malan himself didn’t comment on whether Meloni approved the amendment). In the corridors of the Bank itself, behind its neoclassical facade on Via Nazionale in the heart of Rome, the move prompted consternation at the highest levels.  “I can tell you that people at the bank are furious,” fumed one official, adding that the proposal is illegal under EU law. “Our government — even if made up of thieves — cannot steal from the central bank, even if it writes it into a law.” Lucio Malan, a close ally of Meloni, introduced an amendment to the 2026 budget that would assert the Italian state’s ownership of close to €290 billion worth of gold reserves held by the Bank of Italy. | Simona Granati/Getty Images The Bank of Italy declined to comment on that point, but several Bank officials admitted privately that the move is consistent with a growing sense of antagonism from Meloni’s government. The Bank has always drawn the ire of the populist right, which blames it variously for the erosion of real wages over three decades and for the fall of the late Silvio Berlusconi.  But such antagonism is also consistent with a broader trend across the Western world, where deeply indebted governments are leaning on their central banks, as fiscal needs become more pressing and as dissatisfaction with the technocratic management of the economy grows. U.S. President Donald Trump’s attacks on the Federal Reserve this year have been the clearest example of that but, as one ECB official told POLITICO, the “independence of central banks is not only the problem of the U.S. — there is some encroachment globally happening.” There have been signs that the once close relations between Meloni the Bank’s governor Fabio Panetta — whom she brought home expressly from ECB headquarters in Frankfurt — have cooled. Indeed, Panetta was initially derided by some within the Bank for his apparent deference to the premier. However, some officials believe that relationship was strained when the Bank’s head of research, Fabrizio Balassone, criticized a government budget draft last month, suggesting that tax cuts aimed at the middle classes were more beneficial to wealthy Italians than poor ones. Bank officials maintained the analysis was purely technical and apolitical — “It was, like, two plus two,” one said in defense of Balassone — but it caused a storm in the right-wing, Meloni-supporting press.  The Bank’s leadership worried that the government was not respecting the 132 year-old institution’s “traditions of independence,” said another. Others see the amendment as being of a piece with a broader struggle against Italian officialdom: Francesco Galietti, a former Treasury official and the founder of political risk consultancy Policy Sonar, noted that in recent months, Meloni has pushed through a bill to rein in what she sees as a politicized judiciary, and also clashed with the head of state, President Sergio Mattarella, over an article that suggested he was plotting to prevent her from being reelected. Malan himself insisted that the gold initiative was not directed “against anybody at all.” He nevertheless described the move as emblematic of the Brothers of Italy’s “battle” — without elaborating. BROADER PLAY  Toothless though the bill is now, it still represents an interesting test case for how robustly the EU is willing to defend its laws against national governments who, across the continent, are becoming more and more erratic as they struggle with the constraints of economic stagnation and demographic decline. Earlier this year, the European Commission stood by while Meloni’s government strong-armed UniCredit, one of Italy’s largest banks, into abandoning a takeover that didn’t suit it. EU antitrust authorities only launched an infringement procedure after UniCredit dropped its bid in frustration. Reports also suggest that pressure from Rome is set to scupper a planned merger between the asset management arm of Generali, Italy’s largest insurer, with a French rival, out of fear that the new company would be a less reliable buyer of Italian government debt. If unchallenged, the latest initiative could soon become an existential challenge for the Bank of Italy, said a former official who maintains close connections to Bank leadership. “If you take the gold from the Bank of Italy, it no longer has any reason to exist,”he said. And while Governor Panetta collaborated happily with Meloni at first, “there’s always a limit,” the official said. “When it comes to independence, that’s where it ends — this is only the beginning of a war.” This article has been updated to include the ECB’s legal opinion.

The European Central Bank is hatching a plan to boost the use of the euro around the world, hoping to turn the world’s faltering confidence in U.S. political and financial leadership to Europe’s advantage. Liquidity lines — agreements to lend at short notice to other central banks — have long been a standard part of the crisis-fighting toolkits of central banks, but the ECB is now thinking of repurposing them to further Europe’s political aims, four central bank officials told POLITICO. One aim of the plan is to absorb any shocks if the U.S. — which has backstopped the global financial system with dollars for decades — suddenly decides not to, or attaches unacceptable conditions to its support. The other goal is to underpin its foreign trade more actively and, ultimately, grab some of the benefits that the U.S. has historically enjoyed from controlling the world’s reserve currency. Officials were granted anonymity because the discussions are private. Bruegel fellow Francesco Papadia, who was previously director-general for the ECB’s market operations, told POLITICO that such efforts are sensible and reflect an increasing willingness among European authorities to see the euro used more widely around the world. WHAT’S A LIQUIDITY LINE? Central banks typically use two types of facilities to lend to each other: either by swapping one currency for another (swap lines) or by providing funds against collateral denominated in the lender’s currency (repo lines). The ECB currently maintains standing, unlimited swap lines with the U.S. Federal Reserve, the Bank of Canada, the Bank of England, the Swiss National Bank, and the Bank of Japan, as well as standing but capped lines with the Danish and Swedish central banks. It also operates a facility with the People’s Bank of China, capped in both volume and duration. Other central banks seeking euro liquidity must rely on repo lines known as EUREP, under which they can borrow limited amounts of euros for a limited period against high-quality euro-denominated collateral. At present, only Hungary, Romania, Albania, Andorra, San Marino, North Macedonia, Montenegro and Kosovo have such lines in place. But these active lines have sat untouched since Jan. 2, 2024 — and even at the height of the Covid crisis, their use peaked at a mere €3.6 billion. For the eurozone’s international partners, the knowledge that they can access the euro in times of stress is valuable in itself, helping to pre-empt self-fulfilling fears of financial instability. But some say that if structured generously enough, the facilities can also reduce concerns about exchange rate fluctuations or liquidity shortages. Such details may sound academic, but the availability of liquidity lines has real impacts on business: A Romanian carmaker whose bank has trouble securing euros may fail to make payments to a supplier in Germany, disrupting its production and raising its costs.  “The knowledge that foreign commercial banks can borrow in euros while being assured that they have access to euro liquidity [as a backstop] encourages the use of the euro,” one ECB rate-setter explained.  French central bank chief François Villeroy de Galhau suggested that Europe could at least take a leaf out of China’s book, noting that the Eurosystem “can make euro invoicing more attractive” by expanding the provision of euro liquidity lines. | Kirill Kudryavtsev/Getty Images “Liquidity lines, in particular EUREP, should be flexible, simple and easy to activate,” he argued. One option, he said, would be to extend them to more countries. Another could be to make EUREP a standing facility — removing any doubts about whether, and under what conditions, euro access would be granted. Papadia added that the ECB could also ease access to EUREP by cutting its cost, boosting available volumes or extending the timeframe for use. NOT JUST AN ACADEMIC QUESTION French central bank chief François Villeroy de Galhau suggested in a recent speech that Europe could at least take a leaf out of China’s book, noting that the Eurosystem “can make euro invoicing more attractive” by expanding the provision of euro liquidity lines. China has established around 40 swap lines with trading partners worldwide to underpin its burgeoning foreign trade, especially with poorer and less stable countries. By contrast, the ECB — a historically cautious animal — “is not marketing the euro to the same extent that the Chinese market the renminbi,” according to Papadia.  Another policymaker told POLITICO that while there is a broad consensus that liquidity lines should be made more widely available, the Governing Council had not yet hashed out the details. Austrian National Bank Governor Martin Kocher told POLITICO in a recent interview that there has been “no deeper discussion” on the Council, adding that he sees no reason to promote euro liquidity lines actively. “I’m not arguing that you should incentivize or create a demand. Rather, if there is demand, we should be prepared for it,” he said, acknowledging that “preparation is very important.” He noted that erratic U.S. policies could force the euro “to take on a stronger role in the international sphere” — both as a reserve currency and in transactions. According to a Reuters report earlier this month, similar concerns among central banks worldwide have sparked a debate over creating an alternative to Federal Reserve funding backstops by pooling their own dollar reserves. The ECB declined to comment for this article. RISK AVERSION AND OTHER OBSTACLES  However, swap lines in particular don’t come without risks. “The main risk is that the country would use a swap and then would not be able to return the drawn euros,” said Papadia. “And then you will be left with foreign currency you don’t really know what to do with.” That is exactly the kind of trap some economists warn the U.S. is stumbling into with its $20 billion swap line to Argentina. “The United States doesn’t really want Argentina’s currency,” the Council on Foreign Relations’ Brad Setser wrote in a blog post. “It expects to be repaid in dollars, so it would be a massive failure if the swap was never unwound and the U.S. Treasury was left holding a slug of pesos.” Austrian National Bank Governor Martin Kocher said there has been “no deeper discussion” on the Council, adding that he sees no reason to promote euro liquidity lines actively. | Heinz-Peter Bader/Getty Images Such thinking, another central bank official said, will incline the ECB to focus first on reforming the EUREP lines, which have always been its preferred tool. The trouble with that, however, is that EUREP use may be limited by a lack of safe assets denominated in euros to serve as collateral. Papadia noted that the Fed’s network of liquidity lines works because “the Fed has the U.S.  Treasury as a kind of partner in granting these swaps.” So long as Europe fails to create a joint debt instrument, this may put a natural cap on such lines.  Even with a safe asset, focusing on liquidity lines first could be putting the cart before the horse, said Gianluca Benigno, professor of economics at the University of Lausanne and former head of the New York Fed’s international research department. Europe’s diminishing geopolitical relevance means that the ECB is unlikely to see much demand — deliberately engineered or not — for its liquidity outside Europe without much broader changes, Benigno told POLITICO. Liquidity lines can be used to advance your goals if you already have power — but they can’t create it. For that, he argued, Europe first needs a clear political vision for its role in the global economy, alongside a Capital Markets Union and the creation of a common European safe asset — issues that only politicians can address.

BRUSSELS — European countries are working on an emergency plan B to stop Ukraine running out of money early next year in case they cannot reach a deal on raiding Russia’s frozen assets to fund Kyiv’s war effort.  At a summit a month ago European Union leaders hoped to agree on a proposal to use Moscow’s immobilized reserves for a €140 billion “reparations loan” to Ukraine but the idea ran into fierce opposition from Bart De Wever, the prime minister of Belgium, where the money is held.  Now, with peace talks intensifying, and Kyiv running short of cash, the question of what to do with the Russian assets has taken on a new urgency. “If we don’t move, others will move before us,” said one EU official, granted anonymity like others cited here, to speak freely.  European officials suggested Donald Trump’s new peace drive could help solidify support for the plan to use the frozen funds for a reparations loan. The cash would only become repayable to Moscow in the unlikely future scenario that Russia agrees to pay war damages, under the plan. EU diplomats expect European Commission President Ursula von der Leyen to order her officials to present a draft legal text on the reparations loan within days as momentum grows for a solution. But despite intensive talks between Belgium and Commission in recent weeks, De Wever still has concerns about legal liabilities and the risk of retaliation from Moscow if the Russian funds were used for the loan.  So policy specialists in Brussels are now turning to how to help Ukraine in the event that the reparations loan proposal does not come together in time for EU leaders to sign off on it at a summit on Dec. 18.  One option gaining support is for a “bridging” loan, financed by EU borrowing, to keep Ukraine afloat during the first months of 2026, according to four officials. That would allow more time to set up the full reparations loan using the Russian assets in a way that Belgium can live with, to provide a longer term solution.  Two diplomats said Ukraine could be asked to repay the initial bridging loan to the EU, once it has received funding from the long-term reparations loan. French President Emmanuel Macron said EU allies will finalize “in the coming days” a solution that will “secure funding” and “give visibility to Ukraine.” | Sean Gallup/Getty Images EU countries’ envoys discussed options with the European Commission at a meeting in Brussels on Tuesday. Countries including France, Germany, the Netherlands, Lithuania and Luxembourg all pushed the Commission to keep working on proposals to finance Ukraine, according to one official briefed on the discussion. The prospect of a bridge financing model had been raised on Nov. 4 by EU Economy Commissioner Valdis Dombrovskis, who noted: “The longer we now run delays, the more challenging it will become.” URGENCY The Commission is acutely aware of the need to get a solution in place urgently, with Kyiv warning it faces running out of money in the first few months of next year.  On Tuesday, French President Emmanuel Macron said EU allies will finalize “in the coming days” a solution that will “secure funding” and “give visibility to Ukraine.” In the longer term, the reparations loan is widely seen as the only game in town. There is no appetite among EU member countries to dip into their own national budgets to send cash grants to Ukraine. Many are already struggling with budget deficits and high borrowing costs. Persuading the Belgians to come on board ultimately is therefore seen as key.  “We hope to be able to solve their hesitation,” one EU diplomat said. “We really do not see any other possible option than the reparations loan.” One idea would be to “combine the reparations loan option with one of the other options” the diplomat said. But this must “not take too much time because of course there’s a sense of urgency now and it’s pressing.”  There are still problems with creating a bridging loan using joint EU borrowing, which some commentators have described as “eurobonds” though others dislike the term.  Perhaps the biggest obstacle will be that this kind of EU borrowing would require unanimous support from the bloc’s 27 member countries and Hungary has long opposed new measures to help finance Ukraine’s war effort.  It is possible, however, that casting the bridging loan as designed for Ukraine’s reconstruction, rather than for funding its war machine, would help.  Another factor will be the renewed momentum for a peace deal as Trump’s team seeks to push officials from Ukraine and Russia closer to agreeing terms. The evolving drafts of a peace proposal refer to using the frozen assets to fund Ukraine’s reconstruction. European officials reacted with dismay last week to the idea contained in the original American draft for the U.S. to profit from the use of these assets.  EU leaders are now hopeful that they have convinced Trump’s team that they must have the final say over what happens to these assets, as well as over the timing of European sanctions on Russia being lifted and on Ukraine’s path toward membership of the EU, diplomats said.  Clea Caulcutt and Esther Webber contributed reporting. This article has been updated.

The starter’s gun is about to fire on the race to succeed Christine Lagarde as European Central Bank president in 2027, and two heavyweight countries who have never held the position look likely to make the running: Spain and Germany. Madrid has been conspicuously silent on nominating a replacement for its current representative on the board, Luis de Guindos, who is preparing to leave the vice presidency in June. That has fueled speculation in markets and policy circles that the eurozone’s fourth-largest member is eyeing a bigger prize. The ECB is set for a major leadership reshuffle over the next two years, creating a rare opportunity for national governments to install trusted figures at the top of one of the EU’s most powerful institutions. De Guindos’ post is up for grabs in May next year, while the chief economist role, the presidency and the important markets division will all become vacant in 2027. While Germany, France and Italy have always held one of the six coveted Executive Board seats, Spain has endured a six-year gap without representation. Should it remain silent as the other board seats fill up, this would be a clear indication that Spain wants the top spot. The Spanish economy ministry declined to comment directly, but stressed that “Spain remains firmly committed to having a meaningful and influential presence in key European institutions, as it has consistently done.” Betting on the presidency is a gamble for Madrid, and the competition is fierce — not least because Germany, which has never held the top ECB post, may also want to seize the chance. For once, Spain has a strong candidate in Pablo Hernández de Cos, the former Bank of Spain governor who is now general manager at the Bank for International Settlements. Groomed by former ECB President Mario Draghi, de Cos restored the Bank of Spain’s reputation after a series of missteps before and during the financial crisis. His achievement was implicitly acknowledged by his appointment to two terms as chair of the Basel Committee for Banking Supervision (BCBS), the global standard-setter for bank regulation. But inevitably, the shadow of U.S. President Donald Trump looms over the issue. De Cos moving to the ECB could cost Europe the BIS leadership. Given Europe’s fading relevance to the global economy, Trump may persuade others that — with the IMF, BCBS and the Financial Stability Board already headed by Europeans — the Old Continent has more than its fair share of top jobs. While not powerful, the BIS is a highly prestigious institution commanding a unique overview of global financial flows. Two people familiar with the ECB’s thinking told POLITICO that its current top management is concerned about the risk of losing a slot that has traditionally been held by a European. GERMANY’S MOMENT Much will depend on Germany, which, like Spain, has never held the ECB presidency. The German government will form an opinion “in due course” but will refrain from speculation today, a spokesperson said. The country’s previous contenders — Axel Weber and Jens Weidmann — both fell victim to their unbending faith in conservative monetary orthodoxy in times of crisis. But today, after the worst bout of inflation in Europe for over half a century, the climate looks far more welcoming for a more hawkish leader. As the current Bundesbank president, Joachim Nagel would be the obvious choice. | Pool photo by Maxim Shemetov via Getty Images As the current Bundesbank president, Joachim Nagel would be the obvious choice. A more moderate voice than either Weber or Weidmann, Nagel may be more acceptable to other member states. However, Nagel — a member of the SPD junior coalition partner — has more than once stepped on the toes of German Chancellor Friedrich Merz — most recently by expressing support for joint European debt issuance to finance defense projects. Like de Cos, Nagel could also face competition within his own country. Lars-Hendrik Röller, formerly chief economic advisor to then-Chancellor Angela Merkel and still a heavyweight in Berlin policy circles, has floated Jörg Kukies, who was finance minister under Olaf Scholz. While also a social democrat, Kukies is clearly associated with the right wing of the party and has not recently opposed Merz in public. Kukies may well be an acceptable candidate for the chancellor, a person close to Merz told POLITICO. His impeccable English, PhD in finance from the University of Chicago and a spell leading Goldman Sachs’s German operations would also help his candidacy. But intriguingly, at a recent public event in Berlin, Bank of France Governor François Villeroy de Galhau appeared to suggest that Röller has also been touting a German woman — rather than Nagel — for the presidency. That woman could be the ECB’s current head of markets, Isabel Schnabel, who is said to be eyeing the post. Ordinarily, however, no one is allowed to serve more than one term on the Executive Board, meaning a legal loophole would need to be found to accommodate her. Given the presence of alternative candidates, and given that other member states may view her as excessively hawkish, one former board member said there’s no obvious reason why Germany should risk advancing her. In any case, Berlin may prefer to support a hawk from another country, to avoid pressure to give up the European Commission presidency early: Ursula von der Leyen’s term expires in 2029. GOING DUTCH? Enter Klaas Knot, who stepped down as president of the Dutch central bank in June after 14 years. Knot, like Draghi, a former chair of the Financial Stability Board, would bring deep institutional experience and monetary policy expertise. He also drew conspicuously supportive comments last month from Lagarde, who said he “has the intellect” as well as the stamina and the “rare” and “very necessary” ability to include people. Most of the obstacles in Knot’s way look surmountable: While he took a clearly hawkish line throughout the eurozone crisis, he became a far more nuanced team player during his second term. And while the Netherlands would still have a representative — Frank Elderson — on its board when the presidency comes up, a similar situation was dealt with easily enough in 2011, when Lorenzo Bini Smaghi left early to make room for Draghi. Knot’s only real problem is that he is currently out of the policy circus. “He will need to find a way to stay visible and relevant to bridge the time,” the former Executive Board member said. Knot is still tending potentially important connections: He is advising the European Stability Mechanism (the EU’s bailout fund) on strategic positioning, and the European Commission on central bank independence in potential accession countries. He also remains an avid public speaker — with no less than five engagements at the International Monetary Fund’s annual meeting last month.  But two years can be a long time in European politics. Carlo Boffa contributed reporting.

Hungary’s surging opposition is demanding Prime Minister Viktor Orbán explain a “bailout package” he hinted at securing from U.S. President Donald Trump.   Orbán, a longtime Trump ally, traveled to Washington last week to meet with the American leader. As he returned to Budapest, the populist-nationalist Hungarian premier told his delegation the U.S. had agreed to provide Budapest a “financial shield.” “Certain Brussels instruments that could be used against Hungary can now be considered ineffective … The notion […] that the Hungarian economy can be strangled from the financing side, can now be forgotten,” he said, according to local media, adding, “We have resolved this with the Americans.”  After 15 years in charge, Orbán faces potential defeat in next spring’s national election — and the specter of financial assistance from Washington closely echoes Trump’s recent blockbuster move to save another ideological ally, Javier Milei in Argentina. Orbán’s remarks, which allude to EU money due to Hungary but frozen because of concerns about backsliding on the rule of law, triggered questions Monday from Péter Magyar, leader of Hungary’s opposition, which is leading the ruling Fidesz party in the polls. “Why was such a ‘financial shield’ necessary? Is there a near-state bankruptcy situation? What would Viktor Orbán spend the trillions of forints in American loans on? Why is he indebting his fellow citizens instead of bringing home the 8 trillion forints in EU funds owed to Hungarians?” Magyar demanded in a post on social media. In a separate missive, he added, “Why did Orbán secretly negotiate a huge bailout package?”  EU ESTRANGEMENT Hungarian media outlet Válasz Online reported that Trump and Orbán may have committed to a currency swap between their countries’ central banks — similar to the $20 billion exchange-rate stabilization agreement Argentina inked with the U.S. last month — essentially, a bailout package for Budapest.  If so, it would be the second time Trump provided financial assistance for a right-wing ally ahead of a crucial election, after he approved the bailout package for Milei, the chainsaw-wielding libertarian president of Argentina. That intervention, organized by Treasury Secretary Scott Bessent, included direct U.S. purchases of Argentine pesos and a $20 billion currency-swap agreement giving Buenos Aires access to dollars. Bessent also announced plans to marshal an additional $20 billion in private financing, though that money has yet to appear. There are differences, too, though, which make any Washington-Budapest arrangement more difficult to understand. Hungary’s central bank does not have dollar swap arrangements with the U.S. Federal Reserve, nor does Hungary have a formal backstop — basically, an agreement to help financially in times of fiscal disaster — with the Fed.  By contrast, it does have a swap arrangement for euros with the European Central Bank, and it could also turn to the International Monetary Fund if the ECB were unable, or unwilling, to help. Spokespeople for the White House and U.S. Treasury didn’t immediately respond to a request for comment. Donald Trump’s relationships with Budapest and Buenos Aires reveal clear parallels. | Roberto Schmidt/Getty Images Much of this is currently academic because Hungary is, to put it mildly, in a far better economic position than Argentina — it doesn’t even need a bailout. Hungary, like many EU countries, has weak growth, but the main threats to its financial stability under Orbán’s leadership relate to the potential for estrangement from the EU. ARGENTINA PARALLELS The U.S.’s Argentina intervention was a success, politically, for Milei, whose party won a decisive victory on Oct. 27 in midterm elections allowing him to press ahead with his radical economic overhaul of the country. Trump celebrated the outcome, saying the effort had “made a lot of money for the United States.” Bessent likewise said the U.S. investment had “turned a profit.” But the administration has released no details about the full scope of U.S. involvement or the returns it claims to have earned. Trump’s rescue package has drawn political backlash in the U.S. from both Democrats and even some Republicans, who blasted the administration’s assistance for Argentina as a bailout for a political ally that may boost wealthy hedge funds while risking U.S. taxpayer dollars on a chronically bankrupt country. Bessent said the Argentina intervention was aimed at countering China’s growing clout across Latin America and, more broadly, reasserting American economic power in the Western Hemisphere, comparing the U.S. effort in Argentina to an “economic Monroe Doctrine.”  Trump’s relationships with Budapest and Buenos Aires reveal clear parallels, and an effort to prop up key partners in regions where many leaders are not naturally allied with the U.S. president’s MAGA agenda. The White House also sided with Orbán over the Hungarian leader’s refusal to stop purchasing Russian oil despite a European push to wean off Moscow’s exports, exempting Hungary from U.S. sanctions on Russian energy for one year following his meeting with Trump. Further financial backing from Washington could embolden Orbán, a frequent thorn in the EU’s side, to take even stronger anti-Brussels positions. Seb Starcevic reported from Brussels. Michael Stratford reported from Washington, D.C.

LONDON — Britain’s financial watchdogs have been on a crypto journey — with a little help from Donald Trump.  The Bank of England publishes its long-awaited rules for stablecoin Monday. Two years after the central bank’s Governor Andrew Bailey dismissed the virtual currency — a theoretically more stable form of crypto — as “not money,” its rulebook is now expected to get a cautious welcome from an industry that’s been lobbying hard for a rethink. It would mark quite a shift from the U.K. central bank. Stablecoins “are not robust and, as currently organized, do not meet the standards we expect of safe money in the financial system,” Bailey told a City of London audience in 2023.  Now his top officials herald a “fabulous opportunity.”  The Bank chief’s initial position — that he doesn’t see stablecoins as a substitute for commercial bank money — has put him at odds with the U.K. Treasury, which is on an all-consuming mission to get the sluggish British economy moving. Chancellor Rachel Reeves wants the U.K. “at the forefront of digital asset innovation.”  The United States crypto lobby, fresh from several wins stateside, spied an opportunity. Exploiting those divisions — and pointing to a more gung-ho approach from Trump’s U.S. — has allowed firms to push for a British regime that more closely aligns with their own.  Monday could be a very good day at the office.  TREADING CAREFULLY Stablecoins are a type of cryptocurrency pegged to a real asset, like the dollar, with the largest and best-known offering being Tether. They’re seen as a more palatable version of crypto, and are used by investors to buy other cryptocurrencies, or allow cross-border payments.  The pro-stablecoin camp says their development is necessary to improve payments and overseas transactions for businesses and consumers, particularly as cash usage declines and sending money abroad remains clunky and expensive. If done well, a stablecoin could maintain a reliable store of value and be a viable alternative to cash.  Stablecoins (USDT) are a type of cryptocurrency pegged to a real asset. | Silas Stein/picture alliance via Getty Images Those more cautious, including the BoE, warn there are risks for the wider financial system including undermining public confidence in money and payments if something goes wrong.  And stablecoins are not immune to things going wrong: In 2022, the Terra Luna token lost 99 percent of its value, along with its sister token TerraUSD, a stablecoin which went from being pegged to the dollar on a $1-1 TerraUSDbasis, to being valued at $0.4. Tether also fell during that time to $0.95.  Other central bankers seem to agree with Bailey’s early caution. The Bank for International Settlements, a central bank body, issued a stark warning on stablecoins in June, saying they “fall short” as a form of sound money.  There are also concerns such coins are used to skirt money-laundering laws, with anti-money laundering watchdog the Financial Action Task Force, warning that most on-chain illicit transactions involved stablecoins. The EU has tough regulation in place for digital assets. The bloc prioritizes tighter control over the market than the U.S., with stricter rules on capital and operations.  That’s in stark contrast to the U.S., which passed its own stablecoin regulation — the GENIUS act — earlier this year, which is much more industry-friendly. Donald Trump, whose family is building its own crypto empire, has described stablecoins as “perhaps the greatest revolution in financial technology since the birth of the Internet itself.”  That’s put post-Brexit Britain in a bind: align with the EU, the U.S., or go it alone?  “The U.K. is a bit caught,” a former Bank of England official who now works in digital assets said. They were granted anonymity, like others in this article, to speak freely. “It doesn’t have the luxury of completely creating a bespoke regime. It can do, but essentially, no one’s going to care.” AMERICAN PUSH For a Labour government intent on deregulating for growth, aligning with the U.S. was immediately a more attractive proposition.  Warnings came from the City of London, Britain’s financial powerhouse, that the government would need to embrace crypto and stablecoin for the U.K. to become a global player. Domestic financial services firms wrote to the government calling for it to align its regime with the U.S., talking up “once-in-a-generation opportunity” to establish the future rules for digital assets.   “Securities are getting tokenized,” said one former Treasury official, now working in the private sector. “Bank deposits are getting tokenized. If we don’t build a regime that is permissive enough [to make the U.K. attractive], then the City’s relevance will diminish as a consequence.”  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. Reform UK leader Nigel Farage, whose party is currently leading in the polls, accused Bailey of behaving like a “dinosaur.  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. | Niklas Helle’n/AFP via Getty Images “The Bank’s really got itself into a twist on this one. From what I understand from people who have been at the Bank, this is coming from the top,” said the former BoE employee quoted above.  “Andrew Bailey has made it publicly clear for some many months now that he is sceptical about the two new alternative forms of money, which is stablecoins and central bank digital currencies,” said a financial services firm CEO.  In recent weeks, however, Bailey and his colleagues have softened their rhetoric as well as indicating a relaxed policy is forthcoming.  Sarah Breeden, Bailey’s deputy governor for financial stability, has repeatedly said any limits on stablecoin will be temporary, and recent reports suggest there will be carve-outs for certain firms. Other BoE officials have also backed away from tougher rules on the assets which must be used to underpin the value of a stablecoin.  A second former BoE employee, who now works in the fintech industry, said Bailey was “under a huge amount of pressure, from the government and the industry. He is worried about looking like he is just anti-innovation.”  The BoE declined to comment. The Treasury did not respond to a request for comment. US interest  A state visit by Trump to the U.K. this fall appeared to help shift the debate.   In late September, the Trump administration and the British government agreed to explore ways to collaborate on digital asset rules.  Treasury Secretary Scott Bessent and Reeves announced that financial regulators and officials from the U.S. and U.K. would convene a “Transatlantic Taskforce for Markets of the Future.”  During Trump’s visit, Bessent held a financial services roundtable in London with key figures from industry. “There was a steady slate of crypto attendees there, and the discussion predominantly focused on stablecoins,” said the former Treasury official.  “Rachel Reeves met Scott Bessent and seems to have been told, actually, we’d like you to be much more supportive of … digital assets,” the financial services CEO added.   The U.K. Treasury has been “pretty proactive” in taking meetings with crypto firms and traditional finance firms interested in crypto, in the New York consulate and British embassy in Washington, added the former Treasury official.   The BoE too met with the crypto industry and U.S. politicians, with Breeden at the helm of discussions while she was in the U.S. in October for IMF-World Bank meetings, in an effort to better understand U.S. stablecoin rules.  Last month saw a major olive branch.  A Bailey-penned op-ed in the Financial Times saw the Bank chief recognize stablecoins’ “potential in driving innovation in payments systems both at home and across borders.”   Going further still, Breeden told a crypto conference just this month that synchronization between the U.S. and the U.K. on stablecoin marks a “fabulous opportunity.”  She has heavily indicated there will be more than a slight American influence when she announces the proposals on Nov. 10. “It’s a fabulous opportunity, to reengineer the financial system with these new technologies,” Breeden told the Nov. 5 crypto conference.  “I think a lot of people have observed that it was the U.S. crypto firms that really pushed the dial on getting political will, whereas British firms haven’t been able to secure that,” the former Treasury official said.