Someone will have to pay for the damage caused by the war in Ukraine. Russia will certainly not do that. That is why it will be discussed at the European Union summit to use frozen Russian assets in the EU for this purpose. However, this brings with it various problems
Precise data on it harms they do not exist in Ukraine, and it is very difficult that they will ever be fully determined, but the general joint assessment of the UN, the World Bank, Ukrainian government and the EU that direct damage from the war reached about $176 billion by December 31, 2024 — including the destruction of housing, infrastructure, industrial facilities and public buildings.
Therefore, at the European Union summit, which begins today, December 18, the heads of state and government will discuss the idea of using billions of euros of frozen Russian assets in Europe for additional financing of Ukraine. It is about one of the most politically and legally sensitive topics since the beginning of the war.
In the run-up to the summit, the messages from Brussels were loud and clear. "Let Russia pay," chanted protesters with Ukrainian flags in front of the European Commission and EU Council buildings. It is precisely this idea that EU leaders should now decide on.
In the European Union, about 200 billion euros of Russian assets are currently "frozen", mainly funds of the Russian Central Bank. This means that the owners do not have access to that money, as part of the sanctions imposed due to the aggression against Ukraine. The European Commission and several member states propose that a significant part of these funds be used as the basis for interest-free loans to Ukraine, primarily for defense, starting next year.
Proponents of this model start from the assumption that, after the end of the war, Russia will have to pay war reparations to Ukraine anyway. Kiev would then use those funds to repay the loans received now. This is why this concept is called a "reparation loan".
This idea has been strongly promoted in recent months by the President of the European Commission, Ursula von der Leyen, and the leader of the German CDU, Friedrich Mertz, with the support of Scandinavian and Eastern European countries.
However, there are also serious reservations. Belgium is especially cautious, because the financial institution Euroclear is located in Brussels, which alone keeps more than 180 billion euros of frozen assets of the Russian Central Bank. Both the company and the Belgian state fear Russian retaliation, since Moscow could interpret the transfer of those funds as theft.
The issue of financing Ukraine is expected to dominate the EU summit. The key, however, is how that mechanism would work in the first place.
According to the plan, a financial service like Euroclear would keep Russian assets on its balance sheet, but no longer as liquid assets, but as a claim against the European Commission. Based on this, the Commission would approve loans to Ukraine in multiple tranches.
The EU has already taken the first step: the Council of Member States decided last week to freeze Russian assets indefinitely. Previously, that decision was renewed every six months, which was not stable enough to serve as a basis for long-term "reparation bonds."
Euroclear warns that the property of the Russian Central Bank, according to international law, belongs to the Russian state and that Russia has the right to claim it back. The company believes that the scenario in which Ukraine one day repays the loans from these funds is too uncertain.
There is also a fear that the Kremlin could retaliate with lawsuits against Euroclear, but also with the seizure of European assets in Russia. Large sums of money from Western companies are already on the so-called C-accounts, which the Russian authorities can easily access. Theoretically, Russia could also expropriate European companies that still operate on its territory, as the German-Russian Chamber of Commerce warns.
Because of all this, EU leaders are faced with a decision that goes beyond financial aid to Ukraine: it concerns respect for international law, the stability of the European financial system and relations with Russia in the years to come.
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