COPENHAGEN — EU countries want to use the immobilised funds to support Ukraine, but they remain divided on how to do so, particularly on whether they can — or should — fully seize them.
While the EU and G7 countries have agreed to use the windfall profits stemming from the assets to aid Ukraine’s war effort and financial needs, Brussels is now testing whether and how far governments would be willing to go when it comes to confiscation.
EU foreign ministers on Saturday discussed “further options for the use of revenues stemming from Russian immobilised sovereign assets,” as anticipated by Euractiv.
The renewed push comes as part of a frantic effort to increase pressure on Russia and strengthen Ukraine’s position in future peace negotiations.
“The seizure discussion is directly tied with our budgetary discussion – we’re looking at a funding gap of around €60 billion missing to support Ukraine [in the long-term],” one EU official said.
Is a full seizure legal?
Most EU countries stress that there hasn’t been a clear legal precedent for the EU to base its actions on, and have asked the European Commission to provide an assessment.
From the political point of view, EU leaders made a binding commitment that “in compliance with EU law, Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war.”
This decision remains valid until they decide to change their position.
“We can’t possibly imagine that (…) if there is a ceasefire or peace deal, that these assets are given back to Russia if they haven’t paid for the reparations,” the EU’s top diplomat, Kaja Kallas, said in Copenhagen.
What are the options on the table?
Next to a full seizure and the use of windfall profits under the current terms, there are now ideas to find workarounds to make the assets generate more revenue.
On that, the European Commission is expected to present a range of options in two months, backed by a legal assessment.
One of the options would involve transferring the assets to a Brussels-managed “special-purpose vehicle” (SPV), a new fund to be backed by several EU and non-EU countries.
This would allow riskier investments capable of generating higher returns for Ukraine.
Where do countries stand?
Kyiv’s most ardent supporters – Poland, the Baltic States – want the cash seized outright and spent on reconstruction.
Belgium, home to the clearing house Euroclear, where the majority of the immobilised Russian assets in Europe are parked, declared it will not shoulder the risks alone.
Its government has previously said it would be willing to consider the seizure idea if others commit to sharing the burden. So far, this hasn’t happened.
Poland’s Foreign Minister Radosław Sikorski told reporters in Copenhagen that Warsaw was willing to back an insurance scheme, but admitted “not everyone is ready yet.”
Eurozone heavyweights Germany, France, and Italy maintain that outright confiscation could shatter the EU’s legal credibility and rattle global financial markets.
Italy’s Foreign Minister António Tajani warned in Copenhagen that the bloc has to “play by the rules”.
Germany, in particular, has voiced reservations in Saturday’s talks, according to several accounts from inside the room, arguing the focus should remain on immediate and pledged military aid rather than financial engineering.
“A key question will be whether [opposers to changes] also stick to this position if we arrive at the discussion whether it’s the assets or their taxpayers’ money that will have to be used,” one EU diplomat quipped.
Hungary will object any step further, as it has already sued the EU over channelling billions of the windfall profits for military aid to Ukraine.
Who bears the risk?
The European Commission is expected to develop a plan to mutualise liability, so that any losses are shared among member states.
European Central Bank boss Christine Lagarde, not invited to the talks, has previously been vocally arguing against confiscation, arguing it could weaken trust in the euro as a reserve currency.
“It is crucial to explore all available avenues while minimising the potential risks,” Kallas said, but stressed that “financial markets did not react when we froze the assets, and financial markets are calm now as we’ve discussed this.”
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