EU Leaders Called Upon to Use Immobilized Russian Funds to Fund Ukraine’s Defence

European officials are under pressure to decide on tapping into the Russian Federation's frozen financial reserves to bankroll Ukraine’s defence, during unprecedented calls from the US.

At a critical meeting in Brussels, EU member states will be expected to fulfill a commitment to secure desperately required cash for Ukraine, while Kyiv faces pressure to lose territory while Russian forces eke out gains on the front lines.

“We cannot envision a greater act of EU security than backing Ukraine’s defence,” declared the head of the EU executive, who went on to say that “the coming days will be decisive in securing this.”

She further stated that the EU has to assume ownership for its own security in a world she characterized as “dangerous and transactional,” emphasizing: “This is not an choice. It is a must.”

Funding Proposals on the Table

Earlier, a pair of main proposals were suggested to fund Ukraine’s pressing military and reconstruction needs for the next years:

• Collective European Union borrowing.
• A so-called “compensation loan” backed by Russia’s frozen assets within the bloc.

Legal and Financial Concerns

The Belgian government, which hosts the majority of the €210bn in frozen Russian assets within the EU, has voiced concerns. It states it does not have sufficient guarantees that other EU countries would provide support if the plan collapsed, possibly leaving Brussels with a multi-billion euro bill.

Adding to these worries, the Russian Central Bank announced it was seeking massive damages from the Brussels-based financial institution which holds most of these funds. Belgium also is concerned that courts in nations allied to Russia could attempt to confiscate European assets in response.

Crucial National Stances

Italy has emerged as an significant ally. The prime minister stated that using Russia’s immobilized wealth without a ironclad legal basis would give Moscow a major propaganda victory. Like Belgium, Italy argues that collective EU borrowing would be a safer method.

“Italy, of course, consider fundamental the principle that Russia should be the one to pay for the reconstruction of the country it attacked, but this result must be accomplished with a solid foundation in law,” the Italian leader told parliamentarians.

Germany expressed determination to render up to €90bn in Russian assets “usable for Ukraine’s defense.” He estimated the chances of securing an deal at “50/50.”

He told officials the amount could finance the Ukrainian army for “at least another two years,” and its deployment would send a clear signal to the Russian leadership.

The Proposed “Reparations Loan” Mechanism

According to the envisioned scheme, the EU would grant Kyiv with a large-scale loan funded through issuing bonds. This loan would only be repaid if and when Moscow was forced to pay war damages to Ukraine.

EU officials maintain that Russia’s legal claim on the immobilized assets would remain untouched. Moscow, on the other hand, argues the action constitutes theft and has promised to respond in kind.

Political Hurdles and Consensus

Diplomats engaged in the summit have suggested the reparations loan is the sole viable option, as using the Union's common budget would require the agreement of all members.

Hungary, which is hostile to supporting Ukraine, has promised to block any attempt to use the EU budget as collateral for a Kyiv loan. The compensation loan, however, would need just a qualified majority of EU member states.

“A very large majority of member states favour the compensation loan,” commented one senior EU source. “Any alternative that would require consensus, I believe is realistic so we are left with the reparations loan.”

Recently, the EU used emergency powers to permanently immobilize the Russian assets, averting the risk of losing control on them due to a possible block from a Kremlin-friendly government when restrictions come up for extension.

Some has floated the idea that such authorities could also be used to create an EU loan for Ukraine secured by the budget, bypassing the need for full agreement. However, other countries argue that would be a legal twist beyond acceptable limits.