Post by : Saif Rahman

The European Union is considering a strategy to allocate billions in frozen Russian assets to bolster Ukraine’s defense and budget during 2026 and 2027, aligning with international regulations that prohibit the confiscation of sovereign funds.

According to the proposal, member states could utilize as much as 165 billion euros from the total 210 billion euros of Russian central bank assets currently frozen in Europe. A significant portion of these funds is managed by Euroclear, Belgium's central securities depository. As Russian bonds held there have matured, the resulting cash has remained in deposits at the European Central Bank due to EU sanctions.

Rather than leaving these funds dormant, the EU intends to invest the cash into zero-coupon bonds issued by the European Commission. These bonds would yield no interest for Russia, ensuring Moscow maintains ownership while enabling the EU to extend a “Reparations Loan” to Ukraine. This means Ukraine would access the funds instantly, repaying only once it has secured reparations from Russia after a future peace agreement.

Globally, around 300 billion dollars of Russian sovereign assets are frozen, with 210 billion euros located in Europe. Out of this, approximately 176 billion euros in Euroclear have turned liquid, and another 9 billion euros are set to mature in 2026 and 2027. Other frozen assets in France and other EU nations might also be factored in, though these accrue interest that complicates the overall scheme.

Prior to the allocation of these funds, it might be necessary for the EU to first settle part of a 45 billion euro Group of Seven loan agreed upon for Ukraine last year. Therefore, the effective pool available for the Reparations Loan is estimated at 165 billion euros.

Crucially, this framework circumvents the confiscation of Russia’s assets. Russia retains legal ownership, while EU institutions would replace the cash with AAA-rated European Commission bonds on their balance sheets, maintaining adherence to international norms.

The financial burden is distributed among EU nations. The main concern arises if the EU is compelled to return the funds to Russia before Ukraine has received reparations. Nonetheless, EU leaders have recently consented to keep these assets frozen indefinitely, significantly lowering the risk of unintended release. The guarantees will only be utilized should EU states decide to unfreeze the assets prior to Ukraine receiving its reparations.

This initiative embodies the EU’s commitment to fortifying Ukraine’s defense and economic resilience while adhering to legal constraints regarding the use of frozen foreign assets. It underscores the innovative financial approaches being devised in Europe against the backdrop of the ongoing conflict in Ukraine.

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