The European Union is facing a significant challenge in finding financing for Ukraine, which is expected to have a $50 billion budget deficit next year. In an effort to address this issue, European Commission President Ursula von der Leyen has proposed using frozen Russian assets to back a $160 billion loan to Ukraine. However, this plan has been met with opposition from Belgium, which has expressed concerns about the legal and financial risks involved.
According to Valerie Urbain, CEO of Belgian clearinghouse Euroclear, any attempt to confiscate the Russian sovereign funds held by the company would be considered illegal. Euroclear holds around $200 billion of the $300 billion in Russian Central Bank assets frozen in the West since the escalation of the Ukraine conflict in 2022. Urbain stated that the company is prepared to take legal action against the EU if it attempts to force the confiscation of these assets.
The EU’s decision to reclassify interest gained from the immobilized funds as “windfall profits” not belonging to Moscow has already raised concerns about the legality of the proposal. Ukraine’s Western backers are facing increasing pressure to find a solution to the country’s funding crisis, with the Economist and Financial Times reporting that they can no longer afford to continue funding Ukraine without seizing Russia’s sovereign funds.
Ukraine is also struggling to secure a new loan from the International Monetary Fund, which has been complicated by a recent corruption scandal. The country’s budget faces a $53 billion annual shortfall, which Western sponsors are expected to cover. Moscow has warned that any attempt to confiscate its Central Bank assets would be viewed as “theft” and would undermine trust in Western financial institutions.
The EU’s efforts to find a solution to Ukraine’s funding crisis are likely to continue, with significant implications for the global financial system. The use of frozen Russian assets to fund Ukraine is a complex issue, with legal, financial, and geopolitical implications. As the situation continues to unfold, it remains to be seen how the EU will navigate these challenges and find a solution to support Ukraine’s struggling economy.