How Europe wants to unlock Russia’s frozen cash for Ukraine

The European Union is trying to lend Ukraine tens of billions of dollars, as support from Washington wanes, Russia ekes out gains on the battlefield and Kyiv edges closer to a funding crunch early next year.

The 27-member bloc is discussing borrowing against Russian assets held in Europe frozen by sanctions after Russia’s full-scale invasion of Ukraine.

However, the plan to tap roughly €210bn ($245bn) of Russian assets in Europe, the lion’s share of which is now cash, remains contested.

Fears of retaliation by Russia in Belgium, where most of the money is stored, have bogged down discussions, prompting EU officials to devise creative ways of unlocking the money without formally seizing it.

EU leaders are due to meet this month to decide but continued objections in Belgium, which fears being left on the hook if sued by Russia, are confounding efforts.

If attempts to use Russian assets fail, there is an alternative: borrowing, using headroom in the European Union’s shared budget.

This would, however, push Europe, already heavily indebted, further into the red. Unanimous EU agreement is needed and Hungarian Premier Viktor Orban has dismissed the idea, urging Brussels to stop funding a war that cannot be won.

The European Union froze hundreds of billions of Russian assets — cash, as well as shares and bonds - following the invasion of Ukraine.

The move, its single biggest penalty on Russia, is now one of Europe’s few sources of leverage as it seeks to join the peace talks between Washington, Moscow and Kyiv.

Euroclear, a securities depository equivalent to a financial vault, holds the lion’s share of sanctioned Russian wealth in Europe — more than €180bn ($210bn).

The West has until now engineered loans and payments to Ukraine, using the interest paid on the frozen Russian cash, which Russian President Vladimir Putin denounced as theft.

Going further than this, however, carries risks.

Belgium has stepped up its opposition to the plan, demanding EU partners share responsibility if the move is challenged.

Dmitry Medvedev, deputy chairman of Russia’s Security Council, has warned that taking the frozen assets may be considered by Moscow as tantamount to an act justifying war.

There could be fallout for Western investors, who still own tens of billions of assets stranded in Russia, from factories to cash.

Ukraine’s funding needs in 2026 and 2027 are roughly €135bn — about €52bn for running the country and €83bn for defence. The European Union is seeking to have this money in place by the second quarter of 2026.

It has proposed a "reparations” loan, paid for by the frozen Russian cash. The deal would require Euroclear to invest the cash in a debt contract issued by the EU.

It works like this: the European Union borrows cash from Euroclear, lending it on to Ukraine. Ukraine would repay the money but only after it has been paid compensation by Russia for the damage caused by the invasion.

Other financial companies with similar frozen Russian property, including in France and Germany, would also be drawn into the scheme.

About €90bn would be given over two years.

There are obstacles.

The Commission insists it can press ahead if 15 out of 27 member countries, representing at least 65% of the bloc’s population, vote in favour.

The EU is also seeking to ensure that Russia’s sanctioned assets stay frozen by using an emergency law to override individual countries’ ability to vote to derail the scheme.

It is offering European Union guarantees to shield Belgium from being sued. But the country has not dropped its opposition, making it politically difficult to seal a final deal.

The stakes for Belgium are high. Germany has suggested that recent drone sightings over airports and military bases in Belgium were a message not to touch the frozen assets. Moscow has denied any such connection but has promised a "painful response” if assets are seized. — Reuters