EU Approves Indefinite Hold on Russian Assets as Ukraine Seeks Financial Aid

Governments within the European Union have reached a consensus to indefinitely freeze Russian assets amounting to approximately €210 billion (£185 billion), which have been held in the EU since the onset of Russia’s extensive invasion of Ukraine.

The majority of these funds are stored in the Belgian bank Euroclear. European leaders are optimistic about finalizing an agreement at the upcoming pivotal EU summit next week, which would allocate these assets for a loan aimed at bolstering Kyiv’s military and economic needs.

After nearly four years of conflict, Ukraine faces severe financial constraints, requiring an estimated €135.7 billion (£119 billion; $159 billion) over the next two years. Europe intends to cover two-thirds of this amount, yet Russian officials have accused the EU of misappropriation.

In response to the EU’s proposed loan, the Russian Central Bank announced on Friday its intention to initiate legal action against Euroclear in a Moscow court. Following the full-scale invasion of Ukraine in February 2022, Russia’s assets in the EU were frozen within days, with Euroclear holding €185 billion of those funds.

Both the EU and Ukraine contend that these resources should be utilized to restore what has been ravaged by Russia. Brussels refers to this initiative as a ‘reparations loan’ and has devised a strategy to support Ukraine’s economy with a substantial €90 billion.

“It is only just that Russia’s frozen assets be utilized to reconstruct what they have destroyed, and subsequently, that money rightfully becomes ours,” stated Ukraine’s President Volodymyr Zelensky.

German Chancellor Friedrich Merz emphasized that these assets would enable Ukraine to fortify itself against potential future assaults from Russia.

Legal action from Russia was anticipated in Brussels. European Economic Commissioner Valdis Dombrovskis remarked on Friday that EU financial institutions are “fully safeguarded” from any legal challenges.

However, Belgium shares concerns regarding potential liabilities, fearing it could face significant costs if complications arise. Euroclear’s CEO, Valérie Urbain, warned that utilizing these funds could “destabilize the international financial system.” Moreover, Euroclear has around €16-17 billion of its own assets immobilized in Russia.

Belgian Prime Minister Bart De Wever has outlined a set of “rational, reasonable, and justified conditions” that must be met before he consents to the reparations scheme. He has not dismissed the possibility of pursuing legal action if the plan poses considerable risks to Belgium.

As the EU approaches Thursday’s summit, officials are working diligently to devise a solution that aligns with Belgium’s concerns. Up until now, the EU has refrained from directly accessing the frozen assets but has channeled the “windfall profits” derived from them to Ukraine, amounting to €3.7 billion in 2024. The legal use of interest is viewed as secure since Russia is under sanctions and the returns do not belong to the Russian government.

In 2025, international military assistance for Ukraine has significantly declined, prompting Europe to grapple with filling the financial void left by the US’s near-total withdrawal of support under former President Donald Trump.

Currently, there are two proposed EU strategies intended to supply Ukraine with €90 billion, covering two-thirds of its funding requirements. One approach involves raising funds through capital markets, guaranteed by the EU budget, which is Belgium’s favored route. However, this option necessitates a unanimous decision from EU leaders, which could prove challenging given Hungary and Slovakia’s opposition to financing Ukraine’s military efforts.

The alternative involves loaning cash to Ukraine from the Russian assets, which were initially held in securities but have now largely converted into liquidity. This cash is considered Euroclear’s property and is stored in the European Central Bank.

The European Commission recognizes Belgium’s valid concerns and maintains confidence that they have been adequately addressed. The proposal includes provisions to shield Belgium with a guarantee covering all €210 billion of Russian assets within the EU.

Should Euroclear incur losses related to its assets in Russia, a source from the Commission indicated that these would be compensated through assets belonging to Russia’s clearing house located in the EU.

In instances where Russia pursues legal action against Belgium, any judgment from a Russian court would hold no validity within the EU.

In a significant move, EU ambassadors have reached an agreement to indefinitely immobilize the assets of the Russian central bank situated in Europe. Previously, a unanimous vote was required every six months to renew the freeze, which posed an ongoing risk to Belgium.

Using an emergency provision under Article 122 of the EU Treaties, the ambassadors ensured that the assets remain frozen as long as there is an “immediate threat to the economic interests of the union” or until Russia fulfills its war reparations to Ukraine.

Swedish Finance Minister Elisabeth Svantesson referred to this decision as a “crucial step” in facilitating greater support for Ukraine and safeguarding democratic principles.

Belgium asserts its commitment as a steadfast ally of Ukraine, yet expresses apprehension regarding legal implications associated with the plan, fearing it may bear the burden of repercussions should difficulties arise.

In this context, Belgium’s political landscape, typically fragmented, has united behind Prime Minister Bart De Wever, who is facing pressure from his European counterparts. He remarked during a meeting with UK Prime Minister Sir Keir Starmer in London on Friday that “very important decisions” await the EU in the coming week. He highlighted the collaboration between Belgium and the UK to ensure Ukraine’s continued status as a free, democratic, and sovereign nation.

The EU is optimistic about securing sufficient guarantees for the loan, yet Belgium expresses concerns about additional risks of incurring damages or penalties. “Belgium is a small economy. With a GDP of approximately €565 billion, the implications of a €185 billion bill would be substantial,” cautioned Veerle Colaert, a professor of financial law at KU Leuven University.

She further contended that requiring Euroclear to extend a loan to the EU would breach EU banking regulations. “Banks must adhere to capital and liquidity standards to maintain stability. The EU’s directive to Euroclear contradicts this principle. If complications arise, the responsibility to bail out Euroclear would fall to Belgium, underscoring the necessity for stringent guarantees for Euroclear.”

Time is of the essence, as emphasized by seven EU member states, particularly those geographically closest to Russia, including the Baltics, Finland, and Poland. They consider the plan for frozen assets to be the “most financially viable and politically realistic” resolution.

“This is a matter of destiny for us,” remarked prominent German conservative MP Norbert Röttgen. “If we fail, I am uncertain what our next steps would be. Therefore, we must achieve success within the week.”

While Russia firmly opposes the utilization of its funds, there are growing concerns among European leaders that the US may have differing intentions regarding Russia’s frozen billions as part of its peace strategy.

Zelensky has indicated that Ukraine is collaborating with Europe and the US to establish a reconstruction fund. However, he remains cognizant of discussions between the US and Russia regarding future cooperation.

An initial draft of the US peace plan proposed using $100 billion of Russia’s frozen assets for reconstruction, with the US claiming 50% of the gains while Europe would contribute another $100 billion. The remaining funds would then be funneled into a potential US-Russia joint investment initiative.

An EU source commented that the recent vote to indefinitely immobilize Russian assets adds a layer of protection, making it increasingly difficult for any party to divert these funds. Implicitly, this means that the US would need to secure the approval of a majority of EU member states to endorse a plan that would impose significant financial burdens on them.

Hungary’s Viktor Orban, perceived as Russia’s closest ally within the EU, criticized European leaders for “placing themselves above the rules” and substituting the rule of law with bureaucratic governance.