EU leaders agree funding for Ukraine but using Russian assets poses major test
European Commission president Ursula von der Leyen said the bloc would cover two-thirds of Ukraine’s needs for 2026 and 2027 (Harry Nakos/AP)
Almost four years into Russia’s full-scale war on Ukraine, European Union leaders have committed to funding Kyiv’s economic and military needs for the next two years, one way or another.
At a summit next week, the 27 EU leaders will weigh whether to use tens of billions of dollars in frozen Russian assets held in Europe to help meet Ukraine’s requirements, which the International Monetary Fund puts at €135bn.
Such a move has never been done before, and it comes with risks. The European Central Bank has warned that if Europeans appear willing to grab other countries’ money, it could undermine confidence in the euro currency. Some member nations are also concerned about inviting retaliation from Russia.
Belgium, where most of the assets are held, is the main opponent of the plan. It is fearful that Russia will strike back, either through the courts or in more nefarious ways.
A series of drone incidents near airports and military bases last month suggested that the Kremlin was already doing so, but those responsible were never publicly identified.
European Council president Antonio Costa, who will chair the December 18 summit, has insisted that the leaders should not leave EU headquarters in Brussels until they have reached a decision.
EU leaders froze the money, most of it in Russian Central Bank assets, over the war that Russian president Vladimir Putin launched in February 2022. Moscow has described the scheme as “theft”.
Two plans have emerged. The first would be a “reparations loan” that would use the Russian assets until Moscow agrees to pay for the damage inflicted on Ukraine. Few think Mr Putin will ever agree to pay reparations.
Plan B would be for the EU to borrow the money on financial markets, much as the bloc did to fund a massive loan plan to revive European economies after the coronavirus pandemic.
Many of Europe’s major economies are cash-strapped and mired in debt. But Russia’s war on Ukraine poses an existential threat to the bloc. Intelligence assessments suggest that Mr Putin could launch a war elsewhere in three to five years should he defeat Ukraine.
The assets make up a substantial pot of potentially ready-to-use cash.
The European Commission, the EU’s executive branch, estimates that €210bn worth of frozen assets are currently held in Europe. The vast majority — around €193bn at the end of September — are held in the Belgian financial clearinghouse known as Euroclear.
There are political advantages too. Should the EU choose to use the assets, only “a qualified majority” of countries — around a two-thirds majority — would be required for a green light. Borrowing on financial markets would have to be endorsed by all, meaning that even a single no-vote would sink the idea.
Over the last year, Hungary has blocked EU support for Ukraine at almost every turn. The government in Slovakia is starting to dig its heels in as well. A new and stridently nationalist leader in the Czech Republic could further complicate the decision.
Avoiding a veto is in the interest of the vast majority of member countries.
Unveiling her plan on December 4, European Commission president Ursula von der Leyen said the EU would cover two-thirds of Ukraine’s needs for 2026 and 2027, for a total of €90bn. International partners would fill the gap.
Due to EU sanctions on Russia’s assets, cash balances have accumulated at Euroclear. They have generated interest — some €3.9bn this year, Euroclear says — which is already being used to fund a Group of Seven loan plan for Ukraine.
Under the new plan, some of the cash would be transferred to an EU debt instrument. Ukraine would owe the EU the money but would repay only after the bloc’s sanctions are lifted and after Russia agrees to pay war reparations.
The commission insists that there is no “theft”, as Russia has claimed, because the right of the Russian Central Bank to make a claim on its money and Euroclear’s duty to repay will remain intact.
Once Mr Putin pays war reparations, Ukraine would repay the EU, the EU would repay Euroclear, and Euroclear would repay the Russian Central Bank.
Importantly for Belgium, the plan contains safeguards to ensure that the risks would be shared by its partners. Other EU countries would offer to guarantee the loan if something went wrong. Germany has already signalled that it would do so.
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