Frozen Russian assets: What the EU wants and why Belgium opposes it
Among the many challenges Ukraine has faced since the start of Russia’s invasion in February 2022, one is far from the battlefield – securing the funds to finance its defense.
That need has become even more acute as Moscow claims to be making progress on the front lines and its economy has proven more resilient to unprecedented sanctions than many had expected.
In response, Ukraine’s European allies have backed a German proposal to turn Russian state assets held in Belgium into a “reparation loan” to financially support Ukraine next year.
But the use of the assets themselves has proven far more controversial, with Belgium accusing the European Union of “downplaying” its risks.
What are frozen Russian assets in the West, and why is this proposal facing so much resistance?
What is frozen and where is it?
Many experts, including the Central Bank of Russia, estimate that between $300 billion and $350 billion of assets are frozen in the West, including cash, bonds, and stocks in numerous countries.
As with other central banks, some of Russia's gold and foreign currency reserves are invested in assets such as hard currency, gold, and government bonds.
These assets should not be confused solely with frozen private assets: many Russian individuals and companies sanctioned by the West also have their own private assets frozen, such as real estate or yachts.
Most of the Russian assets frozen by the EU - around €185 billion out of an estimated €210 billion - are held at Euroclear, the Brussels-based central securities depository.
This is because a large part of Russia's foreign exchange reserves were already there before the sanctions.
Much of these assets have matured since 2022 and have now become cash.
The Russian Central Bank did not provide a detailed breakdown of the frozen assets.
What is the EU proposal and why did Belgium reject it?
The EU proposal, championed by German Chancellor Friedrich Merz, would convert 140 billion euros in Russian state assets held in Belgium into a “reparations loan” for Ukraine next year, European Commission President Ursula von der Leyen told reporters on December 3.
The program is not a confiscation of money, but would take the form of a loan, she said, although Ukraine would only have to repay it if Russia pays reparations for war damage.
EU countries have already started using interest earned on about 210 billion euros in frozen Russian assets to help Ukraine’s defense.
The International Monetary Fund (IMF) has estimated that Ukraine will need 135 billion euros in 2026 and 2027.
EU leaders are expected to vote on the reparations loan at a summit in Brussels on December 18.
Most EU countries support the plan, but it has faced sharp criticism from Belgium, which holds the bulk of frozen Russian assets in the EU.
The Belgian government has said it will bear the brunt of any Russian legal action if problems arise with the EU loan based on those assets.
It has also said such a move would jeopardise the possibility of a peace deal in the short term.
“We are persistently appealing for an alternative, namely for the EU to borrow the necessary sums on the market,” said Belgian Foreign Minister Maxime Prevost.
The European Commission is expected to present options to resolve the impasse, but Prevost claims that the draft text “does not address our problems satisfactorily.”
He argues that the risks could lead to “the bankruptcy of Belgium.”
“If Russia takes us to court, there is every chance that they will win the case and then we, Belgium, will not be able to repay those 200 billion euros, because that is equal to the entire annual federal budget.
“That would mean bankruptcy for Belgium.”
Belgian Prime Minister Bart De Wever also expressed concern, writing to von der Leyen to complain that the plan is “fundamentally flawed.”
What does Euroclear say?
Euroclear CEO Valerie Urban made similar arguments.
De Wever says other EU countries must provide Belgium with legally binding guarantees that the risk will be shared if the Ukrainian loan fails or if sanctions against Russia are lifted.
But that is seen as problematic, because the European Central Bank has warned that it cannot be a lender of last resort for such a program.
Instead, Belgium has proposed an EU loan worth 45 billion euros to Ukraine for next year, using reserves from the existing common budget of the 27 member states.
German Chancellor Merz, however, believes that a better way is to use frozen Russian assets.
He described the need as “increasingly urgent” and called on leaders to unite around the idea.
“Ukraine needs our support. Russian attacks are intensifying. Winter is coming...
“And in this regard, I hope that we can find a common solution within the European Union.”
EU foreign policy chief Kaia Kalas also supports the reparations loan plan, arguing that it would strengthen the European stance against Moscow and serve as an incentive for President Vladimir Putin to negotiate.
Verle Kollert, professor of financial law at the Catholic University of Leuven, told BBC News that she believed Belgium's concerns were justified.
"Euroclear has a contractual obligation to repay the money to the Russian central bank at its first request.
"The only reason it hasn't already done so is the sanctions."
If sanctions are lifted while the money has already been lent to the EU, Belgium, not Euroclear, will be financially affected, she said.
She warned that using frozen foreign reserves for other purposes could undermine confidence in the European financial system.
Collert argues that a European market-based loan for Kiev would be safer.
“The advantage of taking money from frozen Euroclear funds is that it is interest-free, but it is not risk-free.”
Under increasing pressure, Merz postponed a planned visit to Norway last week and traveled to Brussels to meet with Prime Minister De Wever and Commission President von der Leyen.
After the meeting, von der Leyen and Merz said they had held “very constructive” talks with De Wever.
EU leaders failed to reach consensus on a similar plan in October.
What does Russia say?
Russia has strongly condemned the proposal.
One of its top bankers has threatened the European Union with 50 years of litigation if the plan is implemented.
Andrei Kostin, chairman of VTB, one of Russia’s leading state-owned banks, said it was unacceptable for Moscow’s frozen assets to be transferred to Ukraine.
“As for seizing our money, we can do without it in the end,” he said.
“The only problem is that this money could be used for war, not peace.”
Foreign Ministry spokeswoman Maria Zakharova warned that the global financial system would “feel the consequences” of any move to seize or divert Russian assets.
The state-run RIA news agency reported that the retaliation could target $285 billion in foreign direct investment from the West in Russia.