FT: EU states revive plan to use frozen Russian assets to fund Ukraine

Sweden, the Netherlands, Spain and Poland are expected to call on the European Commission to restart work on a plan to leverage more than €200 billion in Russian central bank assets frozen in the bloc, amid growing concerns over Kyiv’s funding needs, The Financial Times reports, citing people familiar with the matter.

According to the report, the initiative is aimed at finding a way around Belgium’s objections.

Most of the assets are held at Euroclear, a Brussels-based central securities depository, and Belgium has opposed the proposal over concerns that it could be left liable for the funds if Russia pursues successful legal claims.

“Now is the time to start a new discussion about how we can make further use of Russia’s frozen assets for Ukraine’s, and our, benefit,” Swedish Foreign Minister Maria Malmer Stenergard said. “This is the fair and smart way to make sure that Ukraine can defend itself and all of Europe.”

One person familiar with the document described it as “a call to the Commission to do the technical work” needed to use the assets and ease Ukraine’s budgetary pressures. The letter is expected to be sent on Thursday.

Ukraine has repeatedly urged the EU to use Russian assets frozen after Moscow launched its full-scale invasion in February 2022 to support its defence.

Profits generated by the assets held at Euroclear are already being used to back a loan of up to €50 billion agreed in 2024.

However, Kyiv is now facing additional financial pressure as it works to protect its cities from continued Russian missile attacks. EU governments are concerned that a €90 billion loan backed by the bloc’s budget, hastily arranged last December as an alternative to the frozen-assets plan, will not be sufficient.

“The €90bn loan is a manifestation of the EU’s commitment to support Ukraine, but it is clearly not enough,” Stenergard noted.

EU countries agreed in December to continue work on establishing a “Reparations Loan” based on cash balances linked to Russia’s immobilised assets. However, no further communication has been made on the initiative since then, prompting the countries behind the new letter to request an update from the European Commission.

“We [need to] make sure it’s not only one or two member states that bear the responsibility of this,” one person briefed on the document stressed.

Belgium blocked the proposal last year because of concerns that it could be forced to cover the assets if Russia won legal challenges.

The Kremlin has again warned against any attempt to seize the funds.

The seizure of Russian assets “would be illegal and would have legal consequences,” Kremlin spokesperson Dmitry Peskov told reporters.

“Russia will use the full range of legal means to defend its interests and to pursue legal action against those who made and implemented such decisions,” he added.

An EU official involved in the discussions acknowledged that significant obstacles remain.

“No one has yet come up with a new proposal that doesn’t hit the same political barriers that existed in December,” the official stated, adding, “we don’t have a magic white rabbit to pull out of the hat here”.

“But we can tinker with and tweak the same legal proposals, and if the political environment changes, maybe it will pass,” the official added.

Belgium continues to have concerns over potential Russian legal retaliation and the possible impact on financial markets from using sovereign assets.

“Nothing has changed since the debate and disaster last time,” one person familiar with the matter said.

The renewed push comes as EU governments debate the size and financing of the bloc’s next seven-year budget. Some diplomats believe additional funding for Ukraine could be incorporated into those discussions, increasing pressure on member states to identify new sources of financing.

By Bakhtiyar Abbasov