"This is not confiscation": what the EU wants to do with Russian assets

The European Commission first presented its plan for transferring frozen Russian assets to Ukraine at a briefing in Brussels on October 6.

"This is not about confiscation," a senior European Commission official repeatedly emphasized, presenting the concept of a reparations loan for Ukraine to journalists.

The presented model currently applies only to assets frozen in the Euroclear depository in Belgium, but the European Commission does not rule out its application to other depositories in the European Union that hold frozen Russian assets. Brussels estimates that the assets of the Russian Central Bank in the EU are frozen in the depository in a total amount of 210 billion euros.

If not confiscation, then what?

Hypothetically, if Russia had not launched a full-scale invasion of Ukraine and the European Union had not imposed sanctions on the assets of the Central Bank of Russia, Moscow would have the right to withdraw the cash it holds when Russian securities, mainly bonds, mature in the Euroclear depository. Currently, assets worth 175 billion euros have been converted into cash for this purpose, and this amount is expected to rise to 185 billion euros in a few years, when other bonds also mature. Because of the sanctions, Euroclear has no right to return this money to the Russian Central Bank.

This means, on the one hand, that Euroclear has accumulated cash, and on the other hand, Moscow has the right to demand that Euroclear pay this amount.

“If we are talking about Russian assets, at the moment Russian assets are its claims on Euroclear,” the European Commission official stressed.

Euroclear currently deposits this money with the European Central Bank (ECB), but the European Commission proposes to invest it in European Union debt instruments instead.

“This will be a special debt agreement,” the official explained. “The EU will use these funds to provide Ukraine with a loan with a limited right of repayment, which in this case means that Ukraine will have to repay the loan only after Russia pays war reparations. At the same time, Russia will still have the right to claim from Euroclear, which is very important. So, in terms of Russian assets, nothing changes: the debt to Russia remains at the same level.”

To implement this scheme, the EU will need bilateral guarantees from all 27 - or at least 26 - member states totalling up to €185 billion: these guarantees are designed to protect the EU's borrowing in Euroclear.

How risky is this approach?

"We currently consider the risk of these guarantees to be low," an official from the European Commission stressed. This is due to the fact that EU countries themselves control the situation: they leave the assets under sanctions until Russia pays Ukraine compensation for the losses caused, and this risk does not materialise.

"If Russia pays compensation to Ukraine, Ukraine will use these funds to repay its debt to us, we will repay its debt to Euroclear, Euroclear will repay its debt to Russia and there is no need to resort to guarantees".

Until Russia pays reparations, these assets remain frozen, as decided by the European Council, and therefore the guarantee will not have to be used either.

Only if EU countries suddenly decide voluntarily to unfreeze the assets before Russia pays reparations to Ukraine will this lead to the need to use the guarantee.

“But it is up to EU countries to decide whether they want to lift the sanctions at such a time and accept the consequences of such a decision, including financial ones,” the official said.

Until now, the EU had to unanimously renew these sanctions every six months. Not long ago, Hungary threatened to block the process. If it succeeded, the assets would be unfrozen and returned to Russia.

“To minimize the risk for member states, it is important to change the sanctions regime in a way that reduces the risk of unfreezing assets unintentionally,” the official explained. “And we believe we have a way to do that.”

 

 

The European Commission believes that changing the sanctions regime will not require unanimity and refers to two documents. First, the European Council resolution of 17 October 2024, according to which the assets of the Russian Federation must remain frozen until it ends its aggressive war against Ukraine and compensates for the damage caused. Second, the Treaty on European Union has Article 31.2, which allows for the adoption of legislative acts by a majority vote in certain circumstances.

"This is something new, something that has not been done before, so it is a real breakthrough, and I don't think anyone wants to take this lightly," assured a senior European Commission official.

And what about Belgium?

After listening to all the concerns expressed the other day by Belgian Prime Minister Bart De Wever, the European Commission promises to continue negotiations with the Belgian authorities.

"We believe that the risks for Belgium in this case are quite low. This does not mean that we want to deny the possibility of risks and the need for additional measures, but we should not overestimate those risks either," said a European Commission official.

He gave several arguments.

“First, we believe that our case that, under international law, this is not a confiscation is very convincing. So we feel very comfortable in that regard.”

He then reiterated that, compared to the current situation, no major changes are foreseen for Euroclear, except that Euroclear will invest not in the ECB, but in the EU: both bodies have the highest credit rating of AAA.

“And to the extent that this risk exists, it already exists today and is not specific to this proposal,” explained the European Commission official.

He also said that back in 2024, at the request of Euroclear and Belgium, a number of changes were made to protect them. For example, Euroclear and other EU countries are protected from arbitral tribunal decisions.

“Even if the arbitral tribunal makes a negative decision for them, it cannot be enforced in the EU,” the official specified.

He stressed that for the implementation of the initiative to provide Ukraine with a reparation loan, the most important thing for both Belgium and the entire European Union is burden and risk sharing.

 

 

The European Commission intends to provide Ukraine with a reparations loan to be used for two purposes: for defense and for budgetary support. According to estimates by the International Monetary Fund, in addition to military aid, Kiev will need about 60 billion US dollars (about 52 billion euros) in budgetary support in the period 2026-27. A European Commission official did not rule out that in the next two years the total amount needed by Ukraine for defense and to close budgetary gaps will exceed 130 billion euros, adding that significant contributions from the United States are not expected.

“Failure to provide support will most likely lead to the collapse of Ukraine, which, in our opinion, will seriously threaten the security of the whole of Europe,” the official noted.

How much of the reparations loan will go in which direction has not yet been decided.

“I believe that, given the extreme instability of the situation, it would be reasonable to foresee some flexibility that would allow for an adjustment of the distribution between the two parts,” the official said.

The loan to Ukraine will be disbursed in tranches, but under what conditions and through what control mechanisms this will be implemented, Brussels will decide later. For now, this is not an official legislative proposal, and its aspects will have to be discussed with both the member states and Ukraine.

What about the interest on Russian assets transferred to Kiev?

The European Union and the G7 countries have already provided Ukraine with loans totaling 45 billion euros, which were supposed to be repaid from the proceeds of frozen Russian assets. But what to do when the assets themselves are no longer there?

The official stressed that, in order to repay these loans, the European Commission plans to allocate 45 billion euros from Russian assets.

"We will still discuss how to do this, but, as a precaution, we have allocated 45 billion, which leaves 140 billion, which has been mentioned in the press as potential new financing for Ukraine."

When will the disbursement of reparations loans begin?

The next time the leaders of the European Union and member states will discuss this topic is at a meeting of the European Council on October 23-24. After that, the European Commission is expected to present a more formal proposal than the current plan.

A senior European Commission official explained that it must be implemented by the end of the first quarter of 2026.

"For us, the deadline is the beginning of the second quarter of next year, when we want everything to be ready and working so that we can actually distribute the support," he said. "We have discussed this with the Ukrainian authorities: they will probably still be able to cope with it in the first quarter, but after that the situation will become more tense."