The European Commission plans to use frozen Russian funds to finance a new loan of 140 billion euros in support of Ukraine, Politico reports.
This mechanism would circumvent one of the key problems that has arisen since the start of the war: the EU would be able to confiscate the interest generated by Russian assets, but not the money itself. This would significantly affect Ukraine’s ability to defend itself and rebuild the country.
The Commission issued the note ahead of a meeting of EU ambassadors, which will prepare for a meeting of European leaders scheduled for October 1 in Copenhagen. According to Politico, there is growing frustration in EU countries over the lack of concrete details on the so-called “reparations loan,” which was first mentioned by European Commission President Ursula von der Leyen in her state of the EU report on September 10. The bulk of Russian assets are managed by the Brussels-based financial company Euroclear and invested in Western government bonds. The idea is for the EU to redirect this money to Ukraine by concluding an individual debt contract with Euroclear at 0% per annum. Euroclear holds about 185 billion euros linked to Russian assets. Part of these funds will be used to repay a loan previously granted to Ukraine by the G7 group. The remaining 140 billion euros will be paid in tranches for defense needs and to support Kyiv's regular budget.
Earlier this week, Politico reported that Germany has emerged as the main proponent of a “reparations loan.” Chancellor Friedrich Merz expressed support for the idea in an article for the Financial Times, emphasizing that the loan should finance military aid exclusively. In addition, the United Kingdom has proposed its own “reparations loan,” using about $25 billion in frozen Russian funds held in the country. G7 finance ministers plan to hold an online meeting to coordinate these initiatives. In its note, the European Commission emphasized that the proposed operation would not affect Russian sovereign assets and that Ukraine would repay the loan only after the war is over and Russia pays reparations. The EU, in turn, would reimburse Euroclear so that the company can fulfill its obligations to Russia.
The biggest risk remains the possible blocking of the extension of sanctions by one of the EU countries, for example Hungary, which requires unanimity and occurs every six months. In such a scenario, Russian funds could return to Moscow and loans to Ukraine would be at risk. To avoid this, the Commission has proposed changing the rules for extending sanctions from unanimity to qualified majority. This requires the political agreement of a majority of EU heads of state and government.
