EU's Bold Move: Joint Borrowing for Ukraine Defense Funding

The European Union's decision to fund Ukraine via joint borrowing, rather than seizing Russian assets, has garnered positive feedback from markets, reinforcing the use of shared debt within EU policy. This approach boosts investor confidence, with the EU planning 90 billion euros for Ukraine's defense, despite potential market concerns.

The European Union's decision to support Ukraine through joint borrowing, as opposed to using frozen Russian assets, was well-received by markets, with analysts lauding the continuation of shared EU debt as an effective financial tool. EU leaders agreed to a reduced plan excluding Hungary, Slovakia, and the Czech Republic, securing 90 billion euros for Ukraine's defense over the next two years.

Abandoning the unprecedented proposal to use Russian assets, mostly frozen at Belgium's Euroclear, relieved finance professionals worried about potential repercussions on EU and euro standings. ECB President Christine Lagarde emphasized the importance of avoiding legally contentious moves which might discourage euro asset investments. The maintenance of Russian asset freezes until Moscow compensates Ukraine signifies a commitment to stable financial strategies.

Friday's announcement also signals a more accepting stance on joint EU borrowing, which analysts believe reassures investors and enhances the bloc's crisis readiness. With Germany remaining cautious about frequent increases in joint debt, the EU aims to issue 150 billion euros for defense by 2025, reinforcing the utility of joint bonds for collective aims despite heightened borrowing demands on the markets.

(With inputs from agencies.)