Wider Europe

Welcome to Wider Europe, an RFE/RL newsletter focusing on the key issues concerning the European Union, NATO, and other institutions and their relationships with the Western Balkans and Europe's Eastern neighborhoods.

I'm RFE/RL Europe Editor Rikard Jozwiak, and this week I'm drilling down on two issues: How the West can produce more weapons for Ukraine and can frozen Russian assets finally be used to support Ukraine financially?

Brief #1: The Struggle To Get Weapons To Ukraine

What You Need To Know: One of the main challenges for Western allies entering 2024 is the supply of arms to Ukraine, with plenty of worried assessments in recent months from both Ukrainian and NATO officials that stocks are being depleted quickly.

According to estimates, Ukraine fired 7,000 artillery shells a day during the summer; now it uses 2,000. It should arguably be able to match the 10,000 that Russia is firing daily. The worry has been exacerbated by the fact that the United States, by far the biggest single supplier of arms to Ukraine so far, has entered an election year with a promised $60 billion supplemental Ukrainian aid package stalled in Congress as some Republican lawmakers, in particular, remain hesitant.

In fact, Washington has been unable to provide additional munitions to Ukraine so far this year as cash to replenish stockpiles has run out. This meant that, for the first time, the United States on January 23 pledged nothing at the Ukraine Defense Contact Group, a forum of the war-torn country’s biggest military backers that has met 18 times over the last two years to provide Kyiv with arms.

For Ukraine’s allies, this means that other countries need to step up and deliver arms to Ukraine -- mainly on a bilateral basis. This is happening. But both the European Union and NATO are now trying to ramp up production and military aid to Ukraine by pushing for more joint procurement in a bid to create economies of scale.

When speaking to officials in both organizations, there is optimism. The capacity in the West is there, they suggest, and in general, so is the money. Two big question marks remain: Is there enough political will? And can production be increased fast enough?

Deep Background: Last week, the EU’s diplomatic corps, the European External Action Service (EEAS), sent out a discussion paper to EU member states on what the bloc needs to do to support Ukraine militarily “for as long as it takes” – which remains the club’s stated goal.

The paper, seen by RFE/RL, spells out the dangers of European inaction as Russia transforms itself into a war economy, spending 6.5 percent of gross domestic product on defense this year alone: “Russia is investing significant efforts to increase defense industrial production and reconstitute fighting units. Given the dependence of Ukraine on external support, the choices made by the EU Member States and partners in the coming period will either allow Ukraine to decisively progress or will seriously undermine its ability to resist. Uncertainty around the predictable and structured provision of military assistance to Ukraine will have consequential impact on Ukraine.”

Now, the EU has done a fair bit when it comes to arming Ukraine. With the European Peace Facility (EPF), a financing vehicle separate from the regular EU budget in which member states pay contributions in accordance with their gross national income, the bloc has so far provided 3.5 billion euros to send weapons to Ukraine.

On top of that, money from the EPF has also been used to set up an EU mission, EUMAM, which has so far trained 40,000 Ukrainian soldiers on EU territory.

The document notes that: “the Ukraine Armed Forces’ training needs will only increase, given the high rates of attrition and the demanding situation on the front line. In December 2023, President [Volodymyr] Zelenskiy announced an urgent requirement to mobilize a further 500,000 recruits. This will significantly impact the demands on EUMAM to provide basic recruit training along with the commensurate provision of basic equipment.”

Drilling Down

• Then there is the issue of urgently providing Ukraine with 155-millimeter artillery shells. U.S. production of those shells should reach a bit over 1 million a year by 2025. A year ago, the EU said it would provide Ukraine with 1 million shells by March 2024 and committed another 2 billion euros of EPF money toward it.
• With two months to go, it has delivered about half of that, even though EU officials I’ve spoken with still think reaching the stated target is somehow possible. One of the main issues is that most European ammunition makers, unlike many of their U.S. counterparts, are privately owned. They are used to producing fewer, more sophisticated shells. In order to rejig, they want guarantees from the EU in the form of multiyear contracts and stable cash flow.
• With EPF money running out, the EEAS is proposing a top-up of 5 billion euros this year and “further comparable annual increases could be envisaged until 2027.” EU leaders will discuss this issue when they assemble in Brussels for a summit on February 1.
• Don’t expect any decision at that point. But can we expect one at all? You need unanimity for the proposed cash injection. Will Hungary and Slovakia -- two countries that have publicly rejected more weapons for Kyiv – give a green light? Hungary, for example, has been vetoing the current, eighth tranche of EPF money for Ukraine -- worth 500 million euros -- since the summer and shows no indication of lifting it.
• Then there’s Germany. As the biggest EPF contributor, Berlin has questioned the efficacy of the facility, with all its veto opportunities but also because it has been used to reimburse EU countries for sending weapons from existing stocks instead of placing new orders, the latter of which would force the industry to produce more.
• With NATO, things are proceeding a bit more smoothly. Even though individual allies are sending weapons to Ukraine on a bilateral basis, the military alliance is stepping up in terms of joint procurement.
• Its NATO Support and Procurement Agency (NSPA) has agreed contracts worth over $10 billion since July, its biggest spending spree ever, including 200,000 rounds of 155-millimeter ammunition and 1,000 Patriot interceptor missiles for alliance members that could eventually be transported to Ukraine. The problem, however, is time. The shells will be ready in 24-36 months and the Patriots will take even longer.

Brief #2: Will Proceeds From Frozen Russian Assets Finally End Up In Ukraine?

What You Need To Know: Later this week, the European Union is set to take the first legislative step toward using proceeds from frozen Russian assets in the bloc to the benefit of Ukraine. But don’t expect that the cash will flow immediately into Kyiv’s coffers -- and don’t hope for huge sums. This is still a sensitive issue for the EU, as it touches on fundamental legal issues such as private property rights and the status of the common currency, the euro. So expect Brussels to move forward carefully.

The first thing that needs to be pointed out is that the EU right now is only targeting frozen assets of the Russian Central Bank and the Russian National Wealth Fund in the club. These two entities’ assets in the EU were frozen – or “immobilized,” as Brussels refers to it – in the immediate aftermath of Russia’s full-scale invasion of Ukraine in February 2022.

It is estimated that around 200 billion euros has been frozen, most of it in Belgium.

And here comes the second aspect of what the EU is trying to do: It is only the proceeds of these assets that could eventually end up supporting Kyiv; in other words, interest made off of money deposited in those bank accounts. That is thought to mean some 3 billion-5 billion euros a year that could go toward the economic reconstruction of Ukraine.

Deep Background: The reason for such a modest approach is that many of the larger eurozone members (France, Germany, Italy) but also the European Central Bank (ECB) worry what consequences the move might have on the euro -- notably, on its status as the second reserve currency in the world. If the savings of a sovereign country in the euro area can be taken, will that discourage other countries from placing money in the EU? And would that then undermine international trust in the euro?

In order to assuage such fears, a number of steps are being proposed in draft legal acts seen by RFE/RL.

First and foremost, the move would be taken in coordination with partners from the Group of Seven (G7) leading industrial nations. And then the legal basis is spelled out -- so that if Russia took the EU to court, the bloc could respond with solid judicial arguments. Firstly, the legal act spells out that proceeds cannot be considered sovereign assets and don’t need to be returned to Russia if the sanctions are lifted: “the unexpected and extraordinary revenues covered by this Decision do not have to be made available to the Central Bank of Russia under applicable rules after the discontinuation of the transaction prohibition, thus they do not constitute sovereign assets.”

It also enumerates a long list of reasons why the money should go to Ukraine based on considerations including “the legitimate aim of pursuing the objectives of the Common Foreign and Security Policy, in particular consolidation of and support for democracy, the rule of law, human rights and the principles of international law, including international humanitarian law, the preservation of peace, prevention of conflicts and strengthening of international security and the protection of civilian population as well as assisting populations confronting man-made disasters.”

Drilling Down

• What EU ambassadors are likely to endorse at their meeting on January 31 is the first step in a two-step decision-making process. That first step is that the proceeds will be identified and separated from the rest of the frozen assets, something that -- as I understand it from various EU officials familiar with the process -- can happen relatively quickly.
• The second step, however, will not be decided this week. It is whether to actually send the cash to Ukraine. The proposed legal text once again shows Brussels’ cautious approach, stating: “in a second step, the Council should be able to decide how these net profits should be directed to support Ukraine and its recovery and reconstruction, consistent with applicable contractual obligations, and in accordance with EU and international law, in coordination with partners.”
• The text also notes that it is up to the European Commission and the EU foreign policy chief to indicate when this can happen. In a nod to the importance of the ECB in this decision, it is also added that “in the preparation of such proposal, the High Representative (EU foreign policy chief) and the Commission are expected to consult relevant stakeholders and in particular the European Central Bank.”
• The key discussion among EU member states now is centered on how much time should transpire between the first step and the second one. Some hawkish members, notably the three Baltic states and Poland, want a near-immediate move to ensure that money goes to Kyiv. Others want to wait and see, especially if the U.S. and U.K. take similar steps for frozen dollar and pound sterling accounts, as “everyone in the West needs to jump at the same time.”
• Another argument is that such a small amount of money needn’t be sent to Ukraine immediately, as the expectation is that the EU will agree soon on its 50 billion-euro funding for Ukraine for the next four years. If this can be signed into being by EU leaders at a Brussels summit on February 1, there is no real urgency to send the proceeds to Ukraine right now.

Looking Ahead

On January 31, the International Court of Justice (ICJ) will pronounce its verdict in Ukraine's lawsuit against Russia regarding the alleged violation of the conventions on the prohibition of terrorist financing and the elimination of all forms of racial discrimination. The lawsuit was filed back in 2017 -- so before the 2022 full-scale invasion of Ukraine -- and concerns Russian actions in annexed Crimea and parts of Donetsk and Luhansk that have been under Russian occupation since 2014.

A day later, EU leaders will try to agree on a 50 billion-euro ($54 billion) support package for Ukraine for the next four years at an extra summit in Brussels. They had hoped to green-light this back in December but couldn’t overcome Hungary’s objections at the time. This time, the leaders hope to pacify Budapest by allowing some of the cash to go to Kyiv now but giving Hungary veto opportunities on future tranches.

That's all for this week. Feel free to reach out to me on any of these issues on Twitter @RikardJozwiak, or on e-mail at jozwiakr@rferl.org.

Until next time,

Rikard Jozwiak

If you enjoyed this briefing and don't want to miss the next edition, subscribe here.

Welcome to Wider Europe, RFE/RL's newsletter focusing on the key issues concerning the European Union, NATO, and other institutions and their relationships with the Western Balkans and Europe's Eastern neighborhoods.

I'm RFE/RL Europe Editor Rikard Jozwiak, and this week I'm drilling down on two issues: What NATO will be up to in 2024, and who will be next to adopt the euro?

Brief #1: NATO's Busy And Significant Year Ahead

What You Need To Know: For NATO, the year 2024 will be all about the five S's -- Sweden, succession, Steadfast Defender, spending, and summit. And possibly in that order as well. Perhaps the most imminent news could be the end of Sweden's drawn-out membership saga. Applying in the spring of 2022, most expected a quick entry later that year. But Turkey and Hungary had other plans, and while Finland joined in April last year, Stockholm had to wait.

But ahead of the first NATO ministerial meeting of the year, in Brussels on February 14-15, there is genuine hope that there will be a flag-raising ceremony and Sweden will become member number 32.

This is based largely on small, positive signs from Ankara. The Turkish foreign affairs committee approved the Swedish ratification instrument on December 26, 2023, and when the full plenary opened for business again last week the issue was the last of 42 items on the agenda.

But don't read too much into this. Ankara is still angling for F-16 fighter jets from the United States, plus there are local elections in Turkey on March 31 and recent Turkish air strikes against Kurdish militia in North Iraq and Syria -- all issues that can delay the ratification process. And then there is Hungary. While Budapest has promised that it won't be the last to ratify, the Hungarian government's spring legislation plan sent to the parliament didn't contain any references to Swedish accession. It could very well be that the flag-raising ceremony will have to wait till the next NATO ministerial meeting in April.

Deep Background: In April, we might find out who will be NATO Secretary-General Jens Stoltenberg's successor after the Norwegian's 10 years in the hot seat. From speaking on background to NATO officials, although he will officially leave in the fall, the organization is keen to lock down a candidate before the EU will select its new presidents for the European Council and the European Commission, as well as the bloc's new foreign policy chief after June's parliamentary elections.

The most likely scenario is that the larger NATO nations, led by the United States, will find a suitable compromise candidate that everyone can live with. The frontrunner is Dutch Prime Minister Mark Rutte, who is expected to leave national politics once a new Dutch government is formed. But don't rule out a push for a different candidate by the eastern-flank countries, who argue that, for a long time, they have spent significant budgetary resources on defense and have a greater political understanding of the military alliance's biggest adversary, Russia.

Estonian Prime Minister Kaja Kallas is a name on many lips; a dark horse could be Latvian Foreign Minister Krisjanis Karins, who was born and grew up in the United States, a neat symbol of the transatlantic nature of the alliance.

This spring will also see NATO conduct its largest military exercises in decades -- Steadfast Defender 2024 with over 90,000 troops. The exercises will last over four months across Europe, starting in late January, with the military alliance testing various aspects of NATO's new defense plan, a 4,000-page document adopted last year that details deployment and strategic roles for countries if NATO was attacked.

Drilling Down

• The headline event of the year will, however, be the Washington, D.C. summit on July 9-11. The three-day meeting suggests that it will be more than just a self-congratulatory birthday party, as the organization turns 75 this year. But the event could very much be entangled in the U.S. presidential election cycle, as the convention for the Republican Party takes place just days afterward.
• The Republican convention could be where Donald Trump is confirmed or coronated as the party's candidate for the November election. In his previous stint as president, between 2017 and 2021, Trump was critical of other NATO members for not spending enough on defense.
• While it is far from certain that Trump will be president again, even the possibility of him reentering the White House will bring the issue of defense spending to the top of NATO's agenda. And while European allies have been spending more and more for the last decade, particularly since Russia's full-scale invasion of Ukraine in February 2022, the question is if that is enough.
• Take the so-called Wales pledge, which was made at the alliance's summit in Newport in 2014. It was then agreed that all allies should reach the target of spending 2 percent of gross domestic product on defense in the next 10 years. A decade later only 11 out of 31 allies have done so, even if a few more are likely to hit the goal this year, including heavyweights such as France and Germany.
• Ukraine will obviously feature heavily both at the summit and in the run-up. But as the outcome of the war remains hard to predict, so is Kyiv's NATO integration. Amid U.S. skepticism about giving the country too much membership encouragement in Vilnius, few believe that the tune will change so close to the U.S. election.
• From speaking on background to diplomats and NATO officials, Ukrainian membership of the organization is seen as the elephant in the room and they have not seen what they would regard as hopeful signs from D.C. It looks like Washington won't be an "enlargement summit," with other NATO hopefuls such as Bosnia-Herzegovina and Georgia set to only be represented by ministers and not leaders.
• Instead, the focus will be the question of providing Ukraine with more military aid. Ukrainian diplomats earlier this month briefed NATO officials about recent Russian attacks, where there was discussion about Kyiv's missile stocks.
• Expect NATO allies to do a lot more "bulk buying" -- i.e. getting together to buy military equipment, just as Germany, the Netherlands, Romania, and Spain recently did to procure up to 1,000 Patriot missiles, some of them destined for Kyiv.

Brief #2: Which Country Will Be Next To Adopt The Euro?

What You Need To Know: The debate about the adoption of the euro for the seven European Union member states not using the common currency could come to the fore this year, with European Parliament elections in June approaching and much discussion expected within the bloc about various ways to make it more efficient. While it would be hard to force those countries to adopt the euro, six of them -- Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Sweden -- are actually legally obliged to join once they fulfil all the economic and legal criteria. The seventh country, Denmark, is the only one with an opt-out even though its currency is pegged to the euro.

The relative success of the euro has also created some momentum. Since its introduction as a virtual currency in 1999 (coins and notes started circulating in 2002), it has gone from 11 members to 20 today, with Croatia the latest to join in 2023. Even non-EU Kosovo and Montenegro use the euro as their currency, without the direct permission of the European Central Bank (ECB). And this is despite the eurozone crisis more than a decade ago that threatened to rip apart the common currency zone and force some countries, largely in the south, to abandon the euro. In the end, no country left and the euro is now the world's second reserve currency after the U.S. dollar. According to a survey published last year, nearly 60 percent of the respondents of the seven non-eurozone EU member states thought the euro had a positive impact in countries already using it, and a majority in five of the seven countries would like their country to introduce it. (Only Bulgaria and the Czech Republic had majorities who were wary of joining the euro.)

Deep Background: The country closest to join should be Bulgaria, which was hoping to have the euro as its currency on January 1 this year but is now looking at the start of 2025 instead. Sofia is reportedly nearly ready when it comes to the economic convergence criteria -- keeping interest rates, debt, and the budget deficit under a specific threshold and having spent more than two years in the euro's antechamber, the European Exchange Rate Mechanism, in which a country's national currency exchange rate stabilizes against the euro.

Bulgaria still needs to lower its inflation rate; the benchmark is that it cannot be higher than 1.5 percentage points above the rate of the three best-performing member states. With the country's inflation gradually going down, it is very possible this can be achieved in 2024. In the end, it will be up to the other member states to decide via consensus. And it is very much a political decision, as was the case when Croatia joined little over a year ago, despite having a higher amount of debt than what is usually allowed.

The Netherlands and Germany still harbor fears about taking in Bulgaria, the poorest EU member, and will look closely at how well the country has implemented euro-related legislation, notably on money laundering, but also concerning such things as personal insolvency, changes to the insurance code, and the legal integration of the Bulgarian Central Bank into the Eurosystem -- the monetary authority of the eurozone -- which the Bulgarian parliament is soon set to pass. Key will be the convergence report, produced by the ECB and the European Commission, which is expected in June.

Drilling Down

• Romania is another of the seven countries that has stated that euro integration is a political goal. But it is not really on the horizon yet. Romania's economy has taken a big hit in recent years, and it hardly meets any of the economic convergence criteria. With 2024 being a super election year in the country (local, parliamentary, presidential, and European), there is little talk about the common currency now and the goal set by the country's national bank, to join by 2029, is still the tentative target.
• Hungary has no intention of joining the euro and has even amended its constitution to explicitly state that the forint is the country's currency. With its Prime Minister Viktor Orban locked in several political battles with Brussels in recent years, he is keen to keep Hungarian control over the national bank and key monetary policies such as the setting of interest rates.
• Besides Bulgaria, Romania, and Hungary, we are left with the Czech Republic, Denmark, Poland, and Sweden. And here things could become interesting. Czech President Petr Pavel threw a curveball in his New Year's speech on January 1 by noting that it was time to start taking concrete steps toward euro membership. While most parties in the ruling government coalition support adopting the euro, the biggest one, the Civic Democratic Party, is split and its leader, Czech Prime Minister Petr Fiala, noted that adoption is off the table until parliamentary elections next year.
• In Poland, euro adoption is not on the agenda for now even though the parties of the new, more EU-friendly government is generally in favor of joining.
• In Denmark, there is likewise not much political talk about the matter, but in Sweden there was, for the first time, a majority last year in favor of adopting the euro, according to various polls. That partly reflects the growing general unhappiness about the slide in value of the Swedish krona against the euro.
• In both Sweden and Denmark, there were consultative referendums over 20 years ago on joining the common currency in which the "no" side won. Similar plebiscites would be likely in the future . But if one country were to join, the other would probably follow -- this would also put pressure on Poland and the Czech Republic to follow suit -- as pretty much the entire Nordic-Baltic region would be part of the eurozone.

Looking Ahead

EU foreign ministers will gather in Brussels on January 22. They will meet their Ukrainian counterparts to discuss more EU sanctions on Russia, the attempts by Brussels to use frozen Russian assets to financially contribute to the rebuilding of the war-torn country, and the urgent question of weapons deliveries to Kyiv.

On January 28, Finns go to the polls to elect a new president. The incumbent, Sauli Niinisto, must step down after two six-year terms and will be remembered as a key player in securing the Nordic country's entry into NATO last year. Opinion polls point toward a second round in February, as the two front-runners, the center-right Alexander Stubb and the Green candidate Pekka Haavisto, are very unlikely to secure 50 percent of the vote outright this coming Sunday.

That's all for this week. Feel free to reach out to me on any of these issues on Twitter @RikardJozwiak, or on e-mail at jozwiakr@rferl.org.

Until next time,

Rikard Jozwiak

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