EC Considers Using Funds from Frozen Russian Assets to Arm Ukraine

EC Considers Using Funds from Frozen Russian Assets to Arm Ukraine

Thought for Thursday

“I think we consider too much the good luck of the early bird and not enough the bad luck of the early worm.” - Franklin D. Roosevelt


EC Considers Using Funds from Frozen Russian Assets to Arm Ukraine

Yesterday, the president of the European Commission, Ursula von der Leyen indicated that Brussels should utilise funds gained from the interest accrued on frozen Russian central bank assets held in accounts across EU member states to arm Ukraine.

In a speech delivered yesterday, von der Leyen said that "It is time to start a conversation about using the windfall profits of frozen Russian assets to jointly purchase military equipment for Ukraine”. She continued by stating that "The cost of insecurity — the cost of a Russian victory — is far greater than any saving we could make now. This is why it is time for Europe to step up,"

As we looked at last week, many in Brussels have argued that frozen Russian assets should be directed towards Kyiv to help fund their defensive campaign against the Kremlin’s forces. Washington have also maintained that assets should be handed over to Kyiv, tough some on the continent worry over Russian backlash and the implications on the global financial system.

Such a plan would require unanimous support from the EU’s 27 member states, with any possible opposition likely to come from Hungary and Slovakia who have expressed disquiet over Brussel’s strategy towards Ukraine, while maintaining cordial relations with Russia.

Volodymyr Zelenskyy has long been calling on the West to ramp up their support for the Ukrainian war effort as the conflict enters its third year.

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Further Disquiet on Polish-Ukrainian Border

With Ukraine being the primary topic of conversation in Brussels yesterday, the Polish prime minister Donald Tusk said that Warsaw was considering closing its border with Ukraine for the flow of goods. This comes as thousands of Polish farmers have blocked the Polish-Ukrainian and Polish-Slovakian border in protest against what they see as unfair competition.

Since the full-scale Russian invasion of Ukraine, the EU has waived duties on Ukrainian goods traveling by road to the bloc. However, given Polish farmers are saying that the measures are undercutting their margins given the flow of cheap goods from Ukraine.

Nevertheless, banning the flow of agricultural goods from Ukraine would be tantamount to violating the EU’s trading rules, and its therefore likely that Brussels will need engage in further dialogue with Warsaw to cool down the situation.

On Sunday, Polish Protests attacked eight train carriages carrying 160 tonnes of Ukrainian grain exports set for Gdansk. Ukraine’s Deputy Prime Minister Oleksandr Kubrakov called the incident one of “impunity and irresponsibility”.

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Markets Await Key US Inflation Print

At 1330 this afternoon, market focus will turn to the latest release of the US Core Personal Consumption Expenditures index. Given that this is the Fed’s preferred measure of inflation, all eyes are on the extent to which the print may impact market expectations over the Fed’s future monetary pathway.

The general market consensus is forecasting an annualised print of 2.8%, 10bps down form the previous month’s figure. However, when looking at the month-on-month print, the consensus is predicting the pace of inflation to rise from 0.2% over December to 0.4% in January.

With the Federal Reserve maintaining their benchmark policy target rate of 5.25-5.5% - its highest level in 22 years – the general market consensus is pricing in around a 55% chance of a 25bps cut by December.


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