The clock is ticking for Ukraine. With its military and economy strained after almost four years of relentless conflict, Ukraine is running out of funds. The EU has proposed a bold plan to help, but it's sparking a fierce backlash from Russia. Let's dive into the details.
The core of the EU's strategy involves utilizing frozen Russian assets, primarily held in the Belgian bank Euroclear, to cover Ukraine's staggering budget deficit, estimated at a whopping €135.7 billion (approximately £119 billion or $159 billion) over the next two years. EU leaders are hoping to finalize this at an upcoming summit in Brussels.
But here's where it gets controversial: Russia views this as outright theft. The Russian central bank has already initiated legal action against Euroclear, even before the EU's final decision.
So, what's at stake? Russia has roughly €210 billion in assets frozen within the EU, with a significant portion, around €185 billion, held by Euroclear. The EU and Ukraine argue that these funds should be used to rebuild what Russia has destroyed, framing it as a "reparations loan." Ukrainian President Volodymyr Zelensky has stated, "It's only fair that Russia's frozen assets should be used to rebuild what Russia has destroyed – and that money then becomes ours."
German Chancellor Friedrich Merz echoes this sentiment, believing these assets will "enable Ukraine to protect itself effectively against future Russian attacks."
However, it's not just Moscow that's unhappy. Belgium is wary of potential financial repercussions if the plan goes awry. Euroclear's chief executive, Valérie Urbain, warns that using these assets could "destabilize the international financial system." Furthermore, Euroclear itself has an estimated €16-17 billion immobilized in Russia.
Belgian Prime Minister Bart de Wever has laid out specific conditions for accepting the reparations plan, including the possibility of legal action if it poses significant risks for his country.
What exactly is the EU's plan?
The EU is racing against the clock to find a solution that Belgium can support before next week's summit. Initially, the EU avoided directly touching the assets, instead distributing the "windfall profits" generated from them to Ukraine. In 2024, this amounted to €3.7 billion. The legal basis for using the interest is considered safe because Russia is under sanctions and the proceeds are not considered Russian sovereign property.
However, with international military aid to Ukraine declining in 2025, and the US reducing its financial support, Europe is under pressure to fill the gap. Two EU proposals are on the table to provide Ukraine with €90 billion, covering approximately two-thirds of its funding needs.
One option involves raising funds on capital markets, backed by the EU budget. This is Belgium's preferred method, but it requires a unanimous vote by EU leaders, which is challenging given Hungary and Slovakia's objections to funding Ukraine's military.
The alternative involves loaning Ukraine money from the Russian assets, which have largely matured into cash and are held by Euroclear at the European Central Bank.
The European Commission acknowledges Belgium's concerns and believes it has addressed them. The plan includes a guarantee to protect Belgium, covering all €210 billion of Russian assets in the EU. A Commission source explained that if Euroclear suffers losses on its own assets in Russia, these would be offset by assets belonging to Russia's clearing house within the EU. Furthermore, any ruling by a Russian court against Belgium would not be recognized in the EU.
In a crucial development, EU ambassadors are expected to agree to indefinitely freeze Russia's central bank assets held in Europe. Previously, they had to vote every six months to renew the freeze. The EU ambassadors are set to use an emergency clause under Article 122 of the EU Treaties, allowing the assets to remain frozen as long as there is an "immediate threat to the economic interests of the union."
Why is Belgium still hesitant?
While a staunch ally of Ukraine, Belgium sees legal risks in the plan and fears being left to handle potential repercussions. Prime Minister Bart de Wever is facing pressure from European colleagues and has been in talks with UK Prime Minister Sir Keir Starmer.
"Belgium is a small economy. Belgian GDP is about €565 billion – imagine if it would need to shoulder a €185 billion bill," explains Veerle Colaert, professor of financial law at KU Leuven University.
Even with EU guarantees for the loan, Belgium worries about being exposed to additional damages or penalties. Professor Colaert also suggests that requiring Euroclear to grant a loan to the EU could violate EU banking regulations.
"Banks need to comply with capital and liquidity requirements and shouldn't put all their eggs in one basket. Now the EU is telling Euroclear to do just that," she notes. "Why do we have these bank rules? It's because we want banks to be stable. And if things go wrong it would fall to Belgium to bail out Euroclear. That's another reason why it's so important for Belgium to secure water-tight guarantees for Euroclear."
Europe under Pressure
Time is of the essence, according to seven EU member states, including those closest to Russia, who believe the frozen assets plan is "the most financially feasible and politically realistic solution." Leading German conservative MP Norbert Röttgen warns, "It's a matter of destiny for us...That's why we have to succeed in a week's time."
But here's a potential twist: There are concerns among some European figures that the US may have different plans for Russia's frozen billions, potentially as part of its own peace initiative.
Zelensky has stated that Ukraine is collaborating with Europe and the US on a reconstruction fund, but he's also aware of US discussions with Russia regarding future cooperation.
An early draft of a US peace plan proposed using $100 billion of Russia's frozen assets for reconstruction, with the US taking 50% of the profits and Europe contributing another $100 billion. The remaining assets would then be used in a joint US-Russia investment project.
An EU source suggests that Friday's expected vote to indefinitely freeze Russia's assets makes it more difficult for anyone to take the money away. The US would need to convince a majority of EU member states to support a plan that could cost them a significant amount.
What are your thoughts? Do you agree with the EU's plan to use frozen Russian assets? Do you think the US should have a role in deciding how these funds are used? Share your opinions in the comments below!
