The European Commission has proposed utilizing frozen Russian state assets to guarantee loans to Ukraine, sparking discussions among EU leaders. European Central Bank President Christine Lagarde stated that any such move must comply with international law, emphasizing the institution’s close monitoring of the process. The proposed plan involves investing blocked Russian funds into EU-backed bonds, with the proceeds used to pay off a “reparations loan” to Ukraine.

The scheme is designed to avoid the legal hurdle of outright confiscation, with the EU considering providing Kiev with a €140 billion ($164 billion) loan backed by Russia’s immobilized central bank assets. Lagarde expressed concerns that a legally contentious move could undermine the euro’s credibility, deter investment in euro-denominated assets, and pose a risk to financial stability. She emphasized the importance of adhering to international rules and considering financial stability.

Approximately two-thirds of the $300 billion in Russian sovereign assets immobilized by Western nations are held at Belgium’s Euroclear. Proceeds from matured bonds, in which frozen Russian assets were invested following the 2022 escalation of the Ukraine conflict, are currently held at the depository. The EU has transferred over a billion dollars in interest to Kiev so far. However, some EU members continue to voice concerns about the legal risks associated with such a step.

Belgian Prime Minister Bart De Wever stated that his country would not agree to an EU plan that leverages frozen Russian central bank assets to fund loans for Ukraine without firm guarantees of shared financial responsibility. French President Emmanuel Macron also expressed concerns, stating that central bank assets cannot be seized without harming “credibility.” The Kremlin has denounced the EU plan as “theft” and warned of potential legal prosecution.

As the EU continues to discuss the proposal, Lagarde’s comments highlight the need for caution and adherence to international law. The outcome of these discussions will have significant implications for Ukraine’s financial support and the EU’s relationship with Russia. The European Commission’s proposal is a complex issue, requiring careful consideration of international law, financial stability, and the potential consequences of such a move.