EU Plans to Use Frozen Russian Assets for Ukraine's Reparations Loan

The European Union (EU) is considering a plan to provide Ukraine with a loan of up to €140 billion (£120 billion) over three years, secured against Russian assets frozen due to sanctions imposed after Russia's full-scale invasion of Ukraine in February 2022. Approximately two-thirds of the estimated €290 billion in Russian assets held in the West are located at Euroclear, a central securities depository in Brussels. The EU aims to facilitate this loan without confiscating Russian sovereign assets, instead planning to sign a contract with Euroclear to secure the funds.

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Despite growing support among EU leaders, the plan faces significant legal and political hurdles. Belgium, which holds a substantial portion of the frozen assets, has expressed concerns about potential financial liabilities if Russia demands repayment after sanctions are lifted. While most EU countries are willing to share the risk, Belgium's apprehensions about litigation risks remain. Additionally, the plan's success hinges on the cooperation of Hungary and Slovakia, both of which have historically been more favorable towards Russia.

The Guardian

Ukraine's Deputy Head of the Presidential Office, Iryna Mudra, has emphasized the need for autonomy in how the funds are utilized, arguing that Ukraine should determine its own priorities without external conditions. Mudra stated, "The victim, not the donors or partners, must determine how to address its most urgent defence, recovery and compensation needs." Ukraine aims to allocate a significant portion of the funds for military needs, including the production of long-range weapons, while also addressing urgent reconstruction and compensation for war victims.

Reuters

Within the EU, there are differing opinions on how the funds should be spent. Germany advocates for the funds to be used exclusively for defense, while France insists on purchasing European-made weapons. Conversely, countries like Sweden and the Netherlands support allowing Ukraine to decide on spending. The European Commission has proposed a compromise, suggesting that the majority of the funds should be earmarked for European or Ukrainian-made weapons, with a smaller portion available for general budgetary support.

The Guardian

The EU hopes to finalize the legal framework for the reparations loan by the end of 2025, enabling Ukraine to begin receiving funds by April 2026, coinciding with projected cash shortages. However, the Kremlin has condemned the plan as an illegal seizure of Russian property, warning of potential retaliation. As Ukraine faces a projected $60 billion fiscal gap for 2026 and 2027, the urgency for this financial support is paramount.

Reuters

• “We know best where these resources are most urgently needed.” — Iryna Mudra, Deputy Head of Ukraine's Presidential Office

Kyiv Independent

• “It may even be necessary to spend all the money on defense, if that’s what we need to survive,” — Iryna Mudra, Deputy Head of Ukraine's Presidential Office

Kyiv Independent

• “Today, we already have a clear use for Ukrainian long-range capabilities.” — Volodymyr Zelenskyy, President of Ukraine

Euromaiden Press

• “Ukraine's position is that any conditionality undermines the principle of justice. So the victim, not the donors or partners, must determine how to address its most urgent defence, recovery and compensation needs,” — Iryna Mudra, Deputy Head of Ukraine's Presidential Office

Reuters

While many EU leaders support the reparations loan, Belgium's concerns about potential liabilities and the legal complexities surrounding the frozen assets remain unresolved. Additionally, the feasibility of utilizing Russian assets held outside Belgium has not been fully assessed, leaving uncertainties regarding the total amount available for Ukraine.

The Guardian