For years, Western countries have been contemplating how they could use the assets of the Russian central bank, held abroad, to support the Ukrainian army and rebuild its devastated economy. Many European officials were skeptical, concerned that this could amount to illegal expropriation. Now, with President Donald Trump cutting off US financial support for Ukraine, and European governments scrambling to fill the gap, regional leaders are setting aside these reservations and becoming more radical in their approach. So, Bloomberg decided to figure out how Europe will use frozen Russian assets to support Ukraine, reports UNN.
Details
The publication notes that the Group of Seven industrialized nations has already agreed to leave Russian assets untouched but allow Ukraine to use the profits they generate. A new proposal being discussed by European Union member states goes much further, allowing Russian money to be used to provide loans to Ukraine. The government in Kyiv may never have to repay them if the Russian government does not agree to compensate its neighbor for the damage caused by the war.
The bloc is acting with extreme caution, aware that a full seizure of assets could expose member states to huge potential liabilities.
How would it all work?
Under the first plan agreed in 2024, G-7 countries provide loans to Ukraine, which are to be repaid from interest accrued on Russian foreign assets they froze after Moscow's invasion of the country in 2022. The EU has agreed to provide Ukraine with 45 billion euros (52 billion US dollars) in loans under this initiative.
Currently, the EU is discussing the idea of using the assets themselves to unlock about 140 billion euros in new loans for Kyiv. Russia will not return the assets held in the Brussels-based European depositary bank Euroclear unless it agrees to pay for Ukraine's reconstruction.
To reassure the Belgian government, where Euroclear is located and which has expressed concerns that it would have to pay tens of billions of euros if Russia successfully sues for the money back, the EU will enter into an "individual debt contract" with a 0% interest rate, which will be activated if Euroclear is forced to satisfy any potential future Russian claims. Belgium wants to ensure that these guarantees are legally sound.
The EU's plans are also supported by the UK and Canada, while the US and Japan have yet to decide whether to join the initiative.
What Russian assets have been frozen?
The publication reminds that the EU, G-7, and Australia have frozen about $280 billion in Russian central bank assets in the form of securities and cash. The largest portion of the money is in Europe, as Russian President Vladimir Putin withdrew the bulk of his central bank's assets from the US in 2018 after previous waves of sanctions. Sanctions imposed on prominent Russian individuals have frozen an additional approximately $58 billion in assets, including homes, yachts, and private jets, as of March 2023, according to a statement from the US Treasury Department.
How will Ukraine use the additional funds?
This question is still being discussed, but in general, the additional funding will be used to purchase weapons, develop Ukraine's defense industry, and meet its economic needs. The government in Kyiv desperately needs money: the International Monetary Fund has estimated a funding gap of $65 billion over the next four years.
As Moscow relentlessly bombs Ukrainian cities and destroys energy infrastructure, President Volodymyr Zelenskyy is pleading with allies to send more air defense systems and long-range missiles to strike military targets deep inside Russia. Trump wants Europe to pay for these weapons, and a special procurement program has been created so that Ukraine can buy American military equipment with funds provided primarily by European partners, Bloomberg adds.