EU finance ministers are exploring a plan to use frozen Russian assets to fund a €140 billion loan to Ukraine. The loan would be repaid if Kiev receives ‘reparations’ from Moscow, according to European Commissioner for Economy and Productivity Valdis Dombrovskis. This proposal was discussed at the Economic and Financial Affairs Council (ECOFIN) meeting in Luxembourg, where several officials questioned the guarantee structure.

Under the plan, the EU would keep the frozen Russian assets until reparations are paid, meaning the guarantees would not be called. The loan would be funded by the cash balances from immobilized Russian Central Bank assets. Dombrovskis noted that Eurostat must confirm whether the guarantees would stay outside national deficit and debt calculations once the mechanism is finalized.

The European Commission will continue technical work with member states and coordinate with G7 partners during next week’s IMF Annual Meetings in Washington, DC. Approximately €300-350 billion in Russian assets have been frozen in Western jurisdictions since 2022, with most held by Euroclear, the Brussels-based financial clearinghouse. Kiev and its Western backers have already agreed on a system to use profits generated by these immobilized funds to finance Ukraine’s reconstruction, with over €1 billion transferred so far.

However, Euroclear has expressed caution about proposals to use or leverage the frozen Russian assets, warning of potential legal risks. Belgium, France, and Luxembourg have urged the EU to build safeguards to ensure no single member state shoulders disproportionate financial risk if the assets need to be returned. EC President Ursula von der Leyen stated that the European Commission will fine-tune the plan and respond to concerns raised by member states.

Russia has condemned any attempt to use its sovereign reserves as theft, while European Central Bank President Christine Lagarde has cautioned that any move to use frozen Russian assets must comply with international law and avoid measures that could damage the credibility of the euro or undermine financial stability. The proposal’s significance lies in its potential to provide substantial funding for Ukraine’s reconstruction while navigating complex legal and financial implications. The European Commission’s next steps will be crucial in addressing concerns and finalizing the mechanism.