EU explores "creative" new approach to channel billions of euros in frozen Russian assets to Ukraine, Politico says

The European Commission is reportedly considering a new approach to send billions of euros in frozen Russian assets to Ukraine.

Source: European Pravda, citing Politico, a Brussels-based politics and policy news organisation

Details: The European Commission is said to be considering a method to move billions of euros of frozen Russian assets to Ukraine, by replacing the money transferred to Kyiv with EU-backed IOUs.

Brussels is trying to tackle one of the war’s most persistent challenges: the West can seize interest from Russian assets but not the large capital sums, which would substantially enhance Ukraine’s capacity to defend itself and rebuild.

The new proposal, described by one official as "legally creative", could unlock a significant flow of additional funding for Kyiv’s war effort without technically seizing the Russian assets themselves, which would carry legal risks.

Commission representatives presented the idea to deputy finance ministers behind closed doors in Brussels on Thursday, according to four officials familiar with the matter. The proposal was met with cautious interest, though no agreements or commitments were reached. One official said a formal proposal could be issued soon.

Nearly €200 billion in Russian assets were frozen after Moscow's full-scale invasion of Ukraine in February 2022, most of which are held by the Brussels-based financial institution Euroclear.

As Ukraine confronts an estimated €8 billion budget deficit next year, EU members are exploring innovative ways to keep funding the war-impacted country despite domestic fiscal pressures.

Quote from Politico: "By swapping the cash for zero-coupon short-term EU bonds, the Commission believes it will avoid accusations of seizing the money. The idea has not been signed off, and other options for making use of the Russian assets are also on the table, the officials said.

Under its rules, any maturing assets that Euroclear holds must be transferred into a deposit account with the European Central Bank, which in turn yields interest on the cash held.

Until now, the EU has used the interest generated to repay its share of G7 loan of €45 billion to Ukraine that will soon be entirely paid out."

Background:

• With Ukraine running low on funds, the Commission has proposed using those cash deposits at the ECB to finance a "Reparations Loan" aimed at supporting the war-torn country in the years ahead.
• On Wednesday 10 September, Ursula von der Leyen stressed the need to urgently develop a new mechanism for military funding for Ukraine based on proceeds from frozen Russian assets. 
• Belgian Foreign Minister Maxime Prévot last week reiterated his country’s firm stance against confiscating frozen Russian assets, mostly held in Belgian banks, to support Ukraine. 
• Prévot also rejected an alternative proposal from the UK, which suggested transferring frozen assets into a separate investment fund.

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