EU backs setting aside frozen Russian assets profits for Ukraine

EU member states on Monday (29 January) unanimously agreed to set aside billions of euros of windfall profits from Russian central bank assets frozen in Europe as a first step towards their use for the future reconstruction of Ukraine.

In a meeting late on Monday, the bloc’s ambassadors agreed in principle on this first step, part of the bloc’s show of support for Ukraine ahead of the second anniversary of Russia’s full-scale invasion in February.

The agreement comes just three days ahead of a decisive summit at which EU leaders will seek to overcome Hungary’s objections and sign off on €50 billion in financial support for Ukraine for the next four years.

Of the €260 billion of Russian foreign reserves immobilised in 2022 by the EU, US, Japan and Canada, €191 billion is held in Europe, mainly in Euroclear, a Belgium-based financial services company.

Under Monday’s agreement, profits generated will be booked separately and not be paid out as dividends to shareholders until EU member states unanimously decide to set up a “financial contribution to the [EU] budget that shall be raised on these net profits to support Ukraine”, according to a draft text.

That levy will be “consistent with applicable contractual obligations, and in accordance with [EU] and international law”, the text stated.

The European Commission would then be expected to transfer the money to the EU budget and subsequently to Ukraine, though it is not specified when it would arrive there to be used.

The proposal only targets future profits and will not apply retrospectively.

The text – to be finalised in the next few weeks – will undergo legal and language checks before EU ambassadors can formally adopt it “as soon as possible”, a Belgian EU presidency source said.

France and Germany have already voiced reservations about the plan, while the European Central Bank (ECB) has warned it could undermine confidence in the euro and unsettle global markets.

The European Commission’s proposal on handling frozen assets in December stopped short of seizing the profits and transferring them to the EU common budget due to ECB concerns and critical member states arguing that doing so might trigger financial instability and provoke retaliatory measures from Russia. 

A separate push led by the US and backed by the UK, Japan and Canada to confiscate all Russia’s assets, rather than just profits, is facing resistance from European G7 members, especially Germany, Italy and France.

Confiscating the Russian assets and handing them over to Ukraine would ease the pressure on the West to finance Ukraine’s war effort, but European officials deem it as too legally risky.

[Edited by Alice Taylor]

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