Russia strikes back at Europe’s grand plan to lend Moscow-frozen cash to Ukraine

Russia is taking legal action in response to moves by Ukraine’s European allies to use Moscow’s frozen assets to help Kiev fund its military and economy.

Russia’s central bank is suing Belgium’s Euroclear Bank in a Moscow court, with Russian officials accusing the EU of theft.

Nearly four years after Russia’s all-out war, Ukraine is running out of cash.

For Europe, the solution to plug Kyiv’s €135.7bn (£119bn; $159bn) budget gap over the next two years lies in a Euroclear cash freeze, which EU leaders hope to sign off at next week’s Brussels summit.

Overall, Russia froze some €210 billion in assets in the EU within days of its full-scale invasion of Ukraine in February 2022, of which €185 billion was held by Euroclear.

The EU and Ukraine argue that funds should be used to rebuild what Russia destroyed: Brussels calls it a “reparations loan” and has proposed a plan of up to 90 billion euros to shore up the Ukrainian economy.

“It’s only fair that Russia’s frozen assets should be used to rebuild what Russia destroyed, and then the money becomes ours,” Ukraine’s Volodymyr Zelensky said.

German Chancellor Friedrich Merz said the assets would “enable Ukraine to effectively defend itself against future Russian attacks.”

Russian court proceedings It is expected to be held in Brussels. But it’s not just Moscow that’s unhappy.

Belgium fears it will be saddled with a huge bill if everything goes wrong, with the Bank for Settlements chief executive Valerie Urban saying its use could “destabilize the international financial system”.

Euroclear also holds an estimated €16-17 billion in funds in Russia.

Belgian Prime Minister Bart de Wever offered the EU a series of “reasonable, reasonable and justifiable conditions” before accepting the compensation plan and refused to rule out legal action if it “posed a significant risk” to Belgium.

The EU is working to come up with a solution acceptable to Belgium ahead of next Thursday’s summit.

The EU has so far had no direct access to the assets but has paid “windfall profits” from the assets to Ukraine since last year. In 2024 this figure will reach 3.7 billion euros. Legal use of the interest is considered safe because Russia is subject to sanctions and the proceeds are not Russian sovereign property.

But international military aid to Ukraine has been significantly reduced by 2025, and Europe has been struggling to fill the gap left by the U.S. decision to all but stop funding Ukraine under President Donald Trump.

The EU currently has two proposals aimed at providing Ukraine with €90 billion to meet two-thirds of its funding needs.

One is to raise funds through the capital market and use the EU budget as a guarantee. This is Belgium’s preferred option but would require a unanimous vote from EU leaders, which would be difficult when Hungary and Slovakia oppose funding for Ukrainian forces.

This would allow cash to be provided to Ukraine from Russian assets that were initially held in the form of securities but are now mostly cash. The money is Euroclear property held by the European Central Bank.

The European Commission, the EU’s executive arm, acknowledged Belgium’s concerns were legitimate and expressed confidence they could be resolved.

The plan aims to provide Belgium with guarantees covering all 210 billion euros of Russian assets in the EU.

A European Commission source explained that if Euroclear’s assets in Russia suffered losses, this would be offset by assets belonging to Russia’s own clearing house, which is located in the EU.

If Russia goes after Belgium itself, no Russian court ruling will be recognized by the EU.

In a key development, EU ambassadors are expected to agree on Friday to an indefinite freeze on assets held by the Russian central bank in Europe.

Until now, they have had to vote unanimously every six months to extend the freeze, which could mean Belgium is at risk again.

EU ambassadors will use emergency clauses under Article 122 of the EU Treaty so that assets remain frozen as long as a “direct threat to EU economic interests” persists.

Belgium insists it remains a staunch ally of Ukraine but sees legal risks in the plan and fears it will have to bear the consequences if things go wrong.

In this case, the usually divided political landscape is now backing Prime Minister Bart de Wever, who has come under pressure from his European colleagues and held talks with Prime Minister Sir Keir Starmer in London on Friday.

“Belgium is a small economy. Belgium’s GDP is about 565 billion euros – imagine if it had to shoulder a bill of 185 billion euros,” said Veerle Colaert, professor of financial law at the University of Leuven.

While the EU may be able to secure adequate guarantees for the loan itself, Belgium fears a greater risk of additional damages or penalties.

Professor Collat ​​also believes that the requirement for Euroclear Bank to provide loans to the EU would violate EU banking regulations.

“Banks need to comply with capital and liquidity requirements and should not put all their eggs in one basket. Now the EU requires Euroclear to do this.

“Why do we have these banking rules? Because we want banks to remain stable. If something goes wrong, the responsibility for the Euroclear’s rescue will fall on Belgium. This is another reason why it is so important for Belgium to provide a watertight guarantee for the Euroclear.”

Seven EU member states, including those with the closest ties to Russia such as the Baltic states, Finland and Poland, warned that no more time was wasted. They believe the asset freeze plan is “the most financially feasible and politically realistic solution.”

“This is about our fate,” said Norbert Röttgen, a conservative German lawmaker. “If we fail, I don’t know what we will do after that. That’s why we have to succeed within a week.”

While Russia insists its funds should not be used, Europeans are increasingly concerned that the United States may want to use billions of dollars frozen by Russia in different ways as part of its peace plan.

Zelensky said Ukraine was working with Europe and the United States to establish a reconstruction fund, but he also knew the United States had been discussing future cooperation with Russia.

An early draft of the U.S. peace plan mentioned that $100 billion in frozen Russian assets would be used by the United States for reconstruction, with the United States taking 50% of the profits and Europe adding another $100 billion. The remaining assets will be used for some kind of joint U.S.-Russian investment project.

An EU source said Friday’s expected vote would freeze Russian assets indefinitely, which would have the added advantage of making it harder for anyone to take the money. Implicitly, the United States would then have to win the support of a majority of EU member states to vote for a plan that would cost the economy huge sums of money.