In a significant and decisive move, European Union governments have agreed to indefinitely immobilise approximately €210 billion (£185 billion) of Russian central bank assets that have been frozen within the bloc since the full-scale invasion of Ukraine in February 2022. This crucial decision, confirmed by European Council president António Costa, delivers on an October commitment to keep these assets frozen until Russia ceases its aggression and compensates for the damage caused. Previously, the sanctions underpinning these frozen assets required unanimous renewal every six months, posing a potential risk of veto from Kremlin-friendly governments like Hungary. The EU ambassadors utilized an emergency clause under Article 122 of the EU Treaties to ensure the assets remain frozen as long as an "immediate threat to the economic interests of the union" persists, or until Russia pays full war reparations to Ukraine.

The primary aim of this measure is to provide much-needed financial assistance to Ukraine, which is facing severe cash shortages after nearly four years of war. Ukraine requires an estimated €135.7 billion (£119 billion; $159 billion) over the next two years, with Europe aiming to cover two-thirds of this amount through a proposed €90 billion loan. This urgency is exacerbated by a dramatic slip in international military aid for Ukraine in 2025, particularly following a significant reduction in US funding. The EU's executive arm, the European Commission, has put forward a plan to provide this loan, secured against the immobilised Russian assets, which are predominantly held in Belgian bank Euroclear and have largely matured from securities into cash, now property of Euroclear held in the European Central Bank.

Ukrainian President Volodymyr Zelensky, along with the EU and German Chancellor Friedrich Merz, asserts that it is "only fair" to use Russia's frozen assets to rebuild the country Russia has destroyed and to enable Ukraine to protect itself against future attacks. Brussels refers to this as a "reparations loan." However, this plan has been met with fierce opposition from Moscow. Russia's Central Bank has initiated a lawsuit against Euroclear in a Moscow court, accusing the EU of "theft" and claiming Euroclear's "illegal actions" have damaged its ability to manage funds and securities. Euroclear, a central securities depository, is currently fighting over 100 legal claims in Russia, though it has no say on the use of the frozen funds.

Despite the broad support for aiding Ukraine, the plan faces significant hurdles, primarily from Belgium, the host country for most of the frozen assets. Belgian Prime Minister Bart De Wever, backed by a unified political landscape, has expressed deep concerns regarding the legal and financial risks involved. Belgium fears being exposed to a cascade of lawsuits from Moscow and the potential seizure of its assets in Russia, which could leave it shouldering an enormous bill, potentially up to €185 billion, a substantial sum for an economy with a GDP of around €565 billion. Valérie Urbain, Euroclear's chief executive, has also warned that using these assets could "destabilise the international financial system," especially given that Euroclear itself has an estimated €16-17 billion immobilised in Russia.

Furthermore, financial law professor Veerle Colaert of KU Leuven University argues that requiring Euroclear to grant a loan to the EU could violate EU banking regulations concerning capital and liquidity requirements. She emphasizes that such a move could compromise Euroclear's stability, potentially obliging Belgium to bail out the institution if things go wrong. Consequently, Prime Minister De Wever has demanded "rational, reasonable, and justified conditions" and has not ruled out legal action if the plan "poses significant risks" for his country. His preferred option remains for the EU to raise money on capital markets, backed by the EU budget, though this requires a difficult unanimous vote among EU leaders, as Hungary and Slovakia object to funding Ukraine's military.

In response to Belgium's legitimate concerns, the European Commission has asserted confidence in its safeguards. The plan includes a comprehensive guarantee covering all €210 billion of Russian assets in the EU to shield Belgium from financial repercussions. A Commission source explained that any loss suffered by Euroclear due to its assets in Russia would be offset from assets belonging to Russia's own clearing house within the EU. Additionally, any ruling by a Russian court against Belgium would not be recognized in the EU. Germany, a champion of economic orthodoxy, has also pledged to provide a quarter (€50 billion) of the necessary guarantees for Belgium, signalling its strong support for the frozen assets plan as the best option available. The UK, which holds €27 billion (£23 billion) of frozen Russian assets, supports the initiative and anticipates some G7 countries will adopt similar plans, though US participation, with its modest €4 billion (£3.5 billion) in immobilised assets, remains less certain.

The urgency surrounding this issue is palpable among several EU member states, particularly those closest to Russia, such as the Baltics, Finland, and Poland, who view the frozen assets plan as "the most financially feasible and politically realistic solution" and "a matter of destiny." However, the path forward is not entirely clear. Beyond Russia's direct opposition, concerns linger among European figures that the US might pursue an alternative plan for Russia's frozen billions, potentially involving a US-Russia joint investment project, as hinted in an early draft of a US peace plan. While President Zelensky is engaged with Europe and the US on a reconstruction fund, he is also aware of US-Russia discussions regarding future cooperation. Hungary's Prime Minister Viktor Orban, a close partner of Russia in the EU, has criticized the EU's leaders for "placing themselves above the rules," further highlighting the political complexities. With an EU summit scheduled for next week, leaders are under immense pressure to finalize decisions on funding Ukraine, making the outcome of these discussions critically important for Ukraine's future and the stability of the international financial system.