European leaders are set to give their backing to a significant and potentially game-changing plan to utilize frozen Russian assets to aid Ukraine. The proposal, which has been the subject of extensive deliberation due to its legal and financial implications, aims to channel approximately €140 billion (roughly £121 billion) from Russian state assets currently held in Belgium into support for Kyiv. This move comes as the European Union seeks to bolster its financial assistance to Ukraine amidst dwindling support from other key allies.
The plan involves a complex mechanism where the EU would effectively ‘borrow’ these frozen funds, replacing them with an IOU guaranteed by all member states. This approach is designed to navigate international legal norms that generally prohibit the outright confiscation of sovereign assets. Belgium, the location of the majority of these frozen assets within Euroclear, has expressed reservations, primarily due to concerns about potential legal challenges from Russia and the financial risks involved. However, there is a growing consensus that shared risk across all member states could alleviate these concerns.
The urgency for such measures is underscored by Ukraine’s substantial reconstruction needs, estimated to exceed $486 billion, and the ongoing costs associated with its defense against the full-scale Russian invasion. The EU has already been utilizing interest generated from frozen Russian assets to support Ukraine’s defense since Spring 2024, providing up to €3 billion annually. This new proposal seeks to unlock the principal amounts themselves, offering them as a zero-interest ‘reparations loan’ to Ukraine, with the expectation of repayment through future reparations from Russia once the conflict concludes.
Despite the potential benefits, the plan faces several hurdles. Legally, it hinges on the assumption that Ukraine will ultimately prevail and that Russia will agree to pay reparations. If these conditions are not met, the EU might have to absorb the cost of repaying the IOUs to Euroclear, a burden that could fall on European taxpayers. Furthermore, concerns remain among European central bankers about setting a precedent that could destabilize global financial markets and deter foreign investment in Western economies.
While countries like Poland, Finland, and the Baltic states have strongly supported the initiative, viewing it as an “ingenious” solution, others, particularly Hungary and Slovakia, have voiced opposition, citing fears of Russian retaliation. Some members, like Germany, are pushing for the funds to be exclusively allocated towards the procurement of European weaponry for Ukraine, a condition that Kyiv is resisting, asserting its right to determine its own defense and recovery priorities. Despite these disagreements, there is a possibility that the plan could be approved by a qualified majority, bypassing potential vetoes.
The final decision on the proposal is expected at an upcoming EU summit, following which the European Commission will draft the formal legal framework for the loan, detailing how the funds will be managed and disbursed.