By Kontur and AFP | 2024-05-14

BRUSSELS -- European Union (EU) member states last week reached agreement on a plan to use billions of euros in profits from frozen Russian central bank assets to arm Ukraine and fund its postwar reconstruction.

The EU expects to free a first tranche in July.

Leaders of the 27-nation bloc agreed in March to move ahead with the assets proposal, expected to unlock some €3 billion a year, leaving diplomats to hammer out the details.

Posting on X, the bloc's Belgian presidency said EU ambassadors on May 8 had "agreed in principle on measures concerning extraordinary revenues stemming from Russia's immobilized assets."

It said the funds would "serve to support Ukraine's recovery and military defense in the context of the Russian aggression."

"There could be no stronger symbol and no greater use for that money than to make Ukraine and all of Europe a safer place to live," added European Commission President Ursula von der Leyen.

The EU froze about €200 billion of Russian central bank assets held in the bloc as part of punishing sanctions imposed on Moscow for sending troops into its neighbor in February 2022.

Simply confiscating the money and giving it to Ukraine have so far been ruled out for fear that doing so could rattle international markets and undermine the euro.

But EU leaders settled instead on a plan to target the interest being paid on the frozen assets -- considered legally sound despite warnings of "serious consequences" by the Kremlin.

'First step' to help Ukraine win

Under the deal, to be submitted to EU ministers for formal approval, 90% of the interest would go to a central fund used to pay for weapons for Ukraine, the European Peace Facility, while 10% would go to the EU's separate Ukraine Facility.

About 90% of the funds frozen in the EU are held by the international deposit organization Euroclear, based in Belgium.

As part of the agreement, diplomats said Belgium agreed to send Ukraine the totality of the tax revenues generated by the profits since the start of the war -- a sticking point in negotiations.

That move is expected to free up an additional €1.7 billion for Ukraine in 2024.

Euroclear's fee for handling the assets was also slashed 10-fold, to 0.3% of profits, as part of the deal, diplomats said.

European capitals had been pressing to lower the fees levied by the clearinghouse -- which reported net interest earnings related to Russian sanctions of €4.4 billion in 2023.

The EU has put forward a raft of proposals aimed at arming Ukraine.

Those include allowing the EU's financing body to open up lending to more technologies that can be used by militaries -- a step formally approved by the board of the European Investment Bank May 8.

Margus Tsahkna, the foreign minister of Estonia -- which is leading the drive to ramp up support -- said the May 8 deal should be viewed as a "first step" towards using the full amount of frozen Russian assets.

"Three billion per year for Ukraine is nothing compared to 200 billion to help Ukraine win," he posted on X.

The massive US aid package approved last month -- which earmarks $61 billion (€56.5 billion) for Kyiv -- authorizes President Joe Biden to confiscate and sell Russian assets to finance Ukraine's reconstruction, an idea gaining traction with other G7 countries.

In total an estimated $397 billion (€367.7 billion) in Russian assets have been frozen by the West: three-quarters in central bank assets but also yachts, real estate and other property from oligarchs close to President Vladimir Putin.