Russia Retaliates at Europe's Scheme to Loan Frozen Russian Funds to Ukraine

Ukraine is running out of funding to maintain its military and economy, after close to 48 months of the ongoing invasion by Moscow.

In the view of European leaders, the remedy to plugging Ukraine's budget hole of €135.7bn for the next two years lies in frozen Russian assets located within Belgian bank Euroclear, and Brussels aim to sign that off at their meeting in Brussels next week.

Authorities in Russia state the EU plan would be an illegal seizure, and Russia's central bank announced on Friday it was initiating legal action against Euroclear in a Moscow court prior to a definitive agreement is made.

'Only Fair' to Utilize Russia's Funds, Say Kyiv and Brussels

Overall, Russia has approximately €210bn of its assets frozen in the EU, and €185bn of that is managed by Euroclear.

European and Ukrainian authorities argue that money should be used to rebuild what Russia has destroyed: The European Commission calls it a "reparations loan" and has devised a plan to bolster Ukraine's economy valued at €90bn.

"It's only fair that the assets frozen from Russia should be used to rebuild what Russia has destroyed – and that money then becomes Ukraine's," states Ukraine's Volodymyr Zelensky.

German Chancellor Friedrich Merz says the assets will "help Ukraine to defend itself effectively against future Russian attacks".

The legal move by Moscow was foreseen in Brussels. But it is not only Moscow that is concerned.

Belgium is concerned it will be left with an enormous bill if it all fails, and Euroclear head Valérie Urbain warns using the assets could "undermine the global financial architecture".

Euroclear also has an estimated €16-17bn frozen in Russia.

Belgian Prime Minister Bart de Wever has given Brussels a series of "rational, reasonable, and justified conditions" before he will endorse the reconstruction loan scheme, and he has not excluded legal action if it "poses significant risks" for his country.

Explaining the EU's Proposal?

European Union officials is racing against time ahead of next Thursday's summit to finalize a arrangement that Belgium can accept.

Until now the EU has held off using the principal funds directly but for the past year has directed the "windfall profits" from them to Ukraine. In 2024 that amounted to €3.7bn. Juridically, using the interest is considered less risky as Russia is under sanction and the proceeds are not Moscow's sovereign assets.

But foreign defense assistance for Ukraine has declined sharply in 2025, and Europe has struggled to cover the gap caused by the US decision to all but stop funding Ukraine under President Donald Trump.

There are presently two EU proposals aimed at supplying Ukraine with €90bn, to pay for a large portion of its budgetary necessities.

• One is to secure the capital on the markets, backed by the EU budget as a surety. This is Belgium's first choice but it demands a consensus by EU leaders and that would be challenging when two member states object to funding Ukraine's military.
• That leaves lending Ukraine cash from the frozen Russian funds, which were at first held in bonds but have now predominantly turned into cash. That money is owned by Euroclear held in the European Central Bank.

The EU's executive accepts Belgium has valid worries and says it is assured it has dealt with them.

The proposal is for Belgium to be shielded with a guarantee encompassing all the €210bn of Russian assets in the EU.

If Euroclear face a financial hit of its own assets in Russia, the loss would be compensated from assets belonging to Russia's own clearing house which are in the EU.

If Russia targeted Belgium itself, any judgment by a Russian court would not be recognized in the EU.

As an important step, EU ambassadors are poised to endorse on Friday to permanently block Russia's central bank assets held in Europe indefinitely.

Until now they have had to vote by consensus every six months to extend the freeze, which could have meant a constant risk to Belgium.

The EU ambassadors are planning to use an special provision under Article 122 of the EU Treaties so the assets stay blocked as long as an "immediate threat to the economic security of the union" continues.

The Reasons Belgium is Not Yet Satisfied

Brussels is insistent it remains a strong supporter of Ukraine, but perceives legal risks in the plan and is concerned about being left to handle the fallout if things fail.

A typically divided political landscape in this case has united behind Prime Minister Bart de Wever, who is being pressured from European colleagues.

"Belgium has a modest-sized economy. Belgian GDP is approximately €565bn – think about if it would need to bear a €185bn bill," notes Veerle Colaert, professor of financial law at KU Leuven University.

While the EU might be able to arrange enough assurances for the loan itself, Belgium worries about an further exposure of being vulnerable to extra damages or penalties.

Prof Colaert also argues the stipulation for Euroclear to grant a loan to the EU would violate EU banking regulations.

"Banks need to follow capital and liquidity requirements and shouldn't put all their eggs in one basket. Now the EU is telling Euroclear to do exactly that.

"What is the purpose of these banking laws? It's because we want banks to be secure. And if things fail it would fall to Belgium to save Euroclear. That's a further cause why it's so crucial for Belgium to obtain ironclad protections for Euroclear."

EU Leaders Under Pressure from Every Direction

Time is of the essence, caution seven EU member states including those neighboring Russia such as the Baltics, Finland and Poland. They argue the proposal to use Russian funds is "the most fiscally viable and politically achievable solution".

"This is a crucial test for us," warns leading German conservative MP Norbert Röttgen. "Should we not succeed, I don't know what we'll do subsequently. That's why we have to finalize the deal in a week's time".

While Russia is adamant its money should not be used, there are further worries among European figures that the US may want to deploy Russia's immobilized billions differently, as part of its own diplomatic proposal.

Zelensky has stated Ukraine is working with Europe and the US on a rebuilding fund, but he is also mindful the US has been engaging with Russia about potential collaboration.

An initial document of the US peace plan mentioned $100bn of Russia's blocked funds being used by the US for reconstruction, with the US {taking|receiving