EU Pushes to Extend Russian Asset Freeze with Loan Plan for Ukraine

The European Union is aiming to finalize a deal by Friday to extend the freeze on Russian assets held within the bloc, using emergency powers to safeguard a potential loan to Ukraine. The European Commission plans to present a proposal soon, seeking to finalize the agreement before the week ends according to Bloomberg. The move is a critical step in the EU's effort to access up to €210 billion in frozen Russian assets, which could be used to support Kyiv amid the ongoing war with Moscow.

The current freeze on Russian assets needs to be renewed every six months, raising concerns that some countries could block the extension and potentially allow Russia to reclaim its funds. The Commission's proposed solution would extend the freeze and require a qualified majority for future renewals, ensuring greater stability. Belgium, which hosts most of the frozen assets at Euroclear, has expressed significant concerns, including the potential legal and financial risks it could face if the plan moves forward.

Belgium's Prime Minister Bart de Wever has warned that the country could face legal challenges or even retaliation from Russia if the plan proceeds without sufficient safeguards. He emphasized that Belgium is still seeking a "good solution" and has suggested exploring alternative methods, such as borrowing funds instead of tapping into Russian assets. The European Commission is working to address these concerns by introducing guarantees and mechanisms to mitigate risks, particularly the possibility of Russian courts seeking to reclaim the assets.

Key Sticking Points

The main sticking point remains the use of frozen Russian assets to fund a €90 billion loan for Ukraine.

The plan, unveiled by the European Commission, would use the interest generated from the frozen assets to support Kyiv's budget and defense needs. Ukraine would repay the EU only if Russia agrees to pay reparations for the damage caused during the war according to AP News.

Despite broad support for the strategy, several countries remain hesitant. Hungary has been a consistent opponent of EU aid for Ukraine and is likely to continue resisting the proposal. Other nations, including Slovakia and the Czech Republic, have also shown signs of resistance, complicating the consensus needed to move forward. The European Council President, Antonio Costa, has expressed confidence that a solution will be reached in time for the Dec. 18 meeting of EU leaders.

Belgium's concerns have prompted the European Commission to introduce several safeguards, including a risk-sharing framework involving multiple EU member states. Germany has already committed to providing a significant portion of the backing, which could encourage other countries to follow suit. These measures aim to reduce the financial exposure of any single country and increase the likelihood of securing the necessary qualified majority for the proposal. The Commission is also working with Euroclear to establish clear legal protections against potential Russian legal claims, ensuring that the financial infrastructure remains stable and trustworthy.

Legal and Financial Risks

The proposed reparations loan has raised legal and financial concerns, particularly in Belgium. Euroclear, which holds the majority of the frozen Russian assets, has warned that it could face court action if forced to transfer the funds. Belgium has sought stronger guarantees from other EU member states to share the risks, with Germany already indicating its willingness to provide a significant portion of the backing according to Politico.

Critics argue that the plan sets a dangerous precedent, potentially undermining confidence in European financial institutions. The European Central Bank has warned that using foreign assets could erode trust in the euro as a global currency. Additionally, there are concerns about Russian retaliation, which could take the form of legal action or more direct measures according to Verfassungsblog.

What This Means for Ukraine

Ukraine has warned that it will need €135 billion over the next two years to maintain its war effort and economic stability. Without additional funding, Kyiv could be forced to cut essential services and scale back military operations. The EU's ability to provide financial support is seen as crucial, particularly as the U.S. under President Donald Trump has reduced its aid to the country.

German Chancellor Friedrich Merz has been a strong advocate for the Russian asset plan, calling it "Europe's most powerful current lever" in supporting Ukraine. He emphasized the urgency of the situation and the need for swift action during a recent meeting with Belgian leaders according to Bloomberg. The EU's leaders are under increasing pressure to secure a deal, with the Dec. 18 summit expected to be a pivotal moment in the decision-making process.