EU finds path to make Russia pay for Ukraine arms
Moscow angered by plan to use frozen assets
BRUSSELS — Under tremendous pressure to come up with billions of dollars to support Ukraine’s military and backfill its members’ own dwindling arsenals, the European Union said Wednesday that it had devised a legal way to use frozen Russian assets to help arm Ukraine, just as it was considering other mechanisms to bolster its defense industries.
The developments are an important milestone, with US funding for Ukraine remaining stuck in Congress and Ukraine’s defenses sagging as shortages of ammunition, artillery shells, and missiles force battlefield rationing.
Although the EU is looking at a number of ways to find cash for defense purchases, they all face hurdles.
The goal to “make Russia pay” for Ukraine’s arsenal and for its reconstruction has made for a popular slogan among the allies, but parlaying it into actual policy has proved difficult, largely because of legal concerns around liquidating Russian state assets frozen under sanctions.
Now, after months of political wrangling, the European Commission, the EU executive branch, has found a way to use the profits from those frozen Russian assets for Ukraine’s benefit, with most of the money going to military support for Ukraine.
Set for approval by EU leaders meeting in Brussels on Thursday, the plan could provide Ukraine with up to 3 billion euros (about $3.25 billion) a year, or as much as 15 billion euros ($16.3 billion) from 2023 to 2027, depending on market conditions. The first payment to Ukraine could be made as soon as July, the commission said Wednesday.
After Russia’s invasion of Ukraine more than two years ago, Western nations took the unusual step of freezing more than $330 billion in Russian Central Bank assets held overseas. The bulk of them — over $217 billion — are in the EU. With payments to Russia blocked by sanctions, Moscow has been unable to gain access to those assets, sell them, or benefit from interest earned on them.
As such, cash generated from the assets has remained stuck overseas, with a vast majority held in Belgium by Euroclear, a financial services company. Under the EU plan, 97 percent of profits generated by those assets as of Feb. 15 would go to Ukraine. Companies like Euroclear would retain 3 percent to fund ongoing and future litigation by Russia trying to claw back its assets and revenues.
This year, 90 percent of that windfall would go to funding weapons for Ukraine, the commission said, with the rest reserved for the bloc’s fund for the reconstruction of Ukraine.
“The Russians will not be very happy,” Josep Borrell, the top EU diplomat, said this week. The amount of money, he added, “is not extraordinary, but it is not negligible.”
An earlier version of this plan was delayed twice in the course of 2023 over disagreements among member states and European Central Bank concerns. The bank, the Eurozone’s version of the US Federal Reserve, warned that using assets from another country’s central bank could harm Europe’s reputation as a safe place to store money, which could harm the bloc’s aspiration to increase the international use of its common currency, the euro.
As Borrell had predicted, the Russians were outraged about the proposal. “This is outright banditry and theft,” the Russian Foreign Ministry’s spokesperson, Maria Zakharova, said, Russia’s TASS news agency reported.
Kremlin spokesperson Dmitry Peskov was more restrained. “The Europeans are perfectly aware of the damage that such decisions may cause both to their economy and to their image, their reputation as reliable guarantors of inviolability of property,” Tass quoted him saying.
The revenues from the frozen Russian assets are a start, but the EU will need billions more to continue supporting Ukraine and bolster its own defense, particularly with the looming possibility of a complete rupture in American aid to Ukraine under a Trump presidency.