EU closes in on deal to use Russian frozen assets to fund Ukraine

BRUSSELS — EU leaders are set to instruct the European Commission to design a legal proposal to use billions of euros in Russian frozen state assets to fund a massive loan to Ukraine, after Belgium signaled it would not stand in the way.

The controversial proposal, if adopted, could release up to €140 billion to fund Ukraine’s war effort for another two to three years, using Russian state assets that were immobilized after its full-scale invasion of Ukraine in February 2022.

The European Commission, which has executive power in the EU, first floated the idea in September, but has been waiting for the explicit blessing of European heads of state and government before it moves ahead with a concrete proposal. This is likely to come when the 27 EU leaders hold their quarterly European Council meeting in Brussels on Thursday.

In preparation for the meeting, EU ambassadors informally agreed draft European Council conclusions seen by POLITICO that call on the Commission to put forward a proposal that is “underpinned by appropriate European solidarity and risk-sharing.”

This text is “the political go-ahead” for the Commission to issue a proposal after Thursday’s meeting, a Belgian diplomat said.

“I’m not so worried about Belgium” creating problems in the European Council, echoed an EU diplomat from another country.

Belgium has taken a cautious approach because it hosts Euroclear, the financial body that holds the frozen assets, and fears a court could force it to repay the money itself. But the Belgian diplomat told POLITICO the country would not oppose the call this Thursday for the Commission to come forward with a proposal.

Still, even if the Commission gets a green light, its legal proposal will have to survive weeks of difficult negotiations with national capitals.

An existential moment

For Ukraine, the outcome could prove existential. Without the EU loan, Ukraine faces a $60 billion budget shortfall over the next two years. With the U.S. effectively pulling reliable support for the war-torn country, European officials privately describe this initiative as the “last bullet” to strengthen Kyiv’s hand in peace talks with Russia.

It comes as Washington’s inconsistent position on the conflict appeared to swing in Russia’s favor over the weekend.

Securing the multi-billion “reparations loan” to Ukraine before U.S. President Donald Trump and Russia’s Vladimir Putin meet in Budapest over the coming weeks would be a major boost for Kyiv, undermining attempts to force it to make painful territorial concessions to Moscow.

“The Russians are betting on our war fatigue, but the reparations loan can show Russia that Ukraine will be financially viable for the next two or three years,” said an EU diplomat who, like others quoted in this story, was granted anonymity to speak freely.

Belgium’s red lines

The Commission is confident it can design a plan that is legally sound and avoids accusations of expropriating Russian assets, according to officials briefed on the matter.

The assets held by Euroclear are invested in Western government bonds that have matured into cash. The cash is now sitting in a deposit account with the European Central Bank that the Commission wants to send to Ukraine.

Brussels argues this does not amount to confiscation as Russia could still regain the frozen assets by paying post-war compensations to Ukraine — something that is, however, seen as very unlikely.

In order for this plan to come to fruition, the Commission will still have to convince Belgium’s right-wing Prime Minister Bart De Wever — who has a knack for punchy comments — to give the loan his blessing.

The country fears it could end up having to repay the loan if a court ruling compels the EU to return the money to Russia. The Commission described this scenario as very unlikely as Russian court rulings wouldn’t be enforceable in Europe.

Separately, the Commission floated a number of concessions to quell Belgium’s concerns in an informal document on Thursday. But these guarantees are “too broad and don’t answer all the questions” raised by De Wever in a previous statement, the Belgian diplomat added.

In order not to single out Euroclear, the Commission said it will explore using €25 billion of Russian assets held by bank accounts and depositories elsewhere in the bloc — but admitted that operation is legally tricky.

Belgium fears that investors from countries such as China will withdraw their investments from Euroclear over fears that their funds will also be taken away for political reasons.

In a further concession, the EU executive suggested a safety net that allows the Commission to instantly lend money to countries if they ever have to repay the loan.

This is meant to reassure Belgium that it won’t be left alone, and that other EU countries will contribute in the worst-case scenario.

Even without Belgium’s final approval on Thursday, the Commission can still put forward a legal proposal after the leaders’ meeting.

“Belgium has put forward a maximalist position in order to compromise once there is a proposal on the table,” said the first EU diplomat.