The Status of Frozen Russian Assets and the EU’s Search for a Legal Path to Finance Ukraine

Introduction

As Europe prepares for a decisive round of negotiations in December, the fate of more than €200 billion in frozen Russian sovereign assets has become central to the continent’s strategy for supporting Ukraine. The question confronting EU leaders is unprecedented: Can Russian state assets held in Europe be used directly or indirectly to finance Ukraine’s war effort and post-war recovery?

The answer will shape not only Ukraine’s financial survival but also the future of sovereign immunity, international finance, and the resilience of Europe’s political architecture.

What began as a technical debate has transformed into one of the most consequential legal and geopolitical decisions faced by the European Union since the start of the conflict.

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The Scale of Frozen Russian Assets: A Global Overview

Since Russia’s full-scale invasion of Ukraine in 2022, Western governments have frozen an estimated $280–$330 billion of Russian sovereign assets. These include central-bank reserves, government funds, and state financial instruments held across Western jurisdictions.

The EU’s Dominant Share

• Over €200 billion nearly two-thirds of the global total is located within the European Union.
• The majority of these funds, up to €185 billion, sit in a single institution: Euroclear, the Brussels-based central securities depository.

This concentration of assets gives the European Union unparalleled leverage but also exposes it to significant legal and financial risks.

Euroclear’s Unique Position

Euroclear continues to generate substantial profits from the frozen Russian assets, mainly through interest income. These revenues have surged as global interest rates climb, resulting in:

• Billions of euros in annual income
• A political debate over who is legally entitled to the returns
• Russia accusing Euroclear of “theft” and threatening retaliatory seizures

The assets remain frozen, but their sheer scale has become a cornerstone of Europe’s financing discussions for Ukraine.

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The Legal Dilemma: Confiscation or Collateralization?

The EU estimates that Ukraine faces a €136 billion budget and reconstruction gap for 2026–2027. This has forced Brussels to explore mechanisms for mobilizing the immobilized Russian funds. However, every option comes with major legal obstacles.

A. Full Confiscation: The Unlikely Option

Outright seizure of Russian state assets the approach Kyiv strongly advocates has been deemed legally untenable by most European governments.

Why confiscation is off the table (for now):

1. Violation of sovereign immunity:
   International law protects state assets from confiscation, even in cases of aggression.

2. Financial system risks:
   Confiscation could undermine investor trust in European markets, raising concerns about the safety of sovereign reserves held in Europe.

3. Geopolitical blowback:
   Russia has threatened to retaliate through the seizure of foreign assets within its borders.

4. Eurozone stability concerns:
   Legal uncertainty could affect the Euro’s reputation as a safe reserve currency.

While some Eastern European leaders argue for breaking the precedent in the name of justice, most Western European states remain convinced that confiscation is too risky.

B. The Reparations Loan: The EU’s Preferred Path

Given the legal obstacles, the European Commission under President Ursula von der Leyen has put forward a legally tested alternative: a large-scale loan to Ukraine, collateralized by Russia’s frozen assets.

How the model works:

1. The EU issues a loan to Ukraine potentially up to €140 billion.

2. Frozen Russian assets serve as collateral, but are not seized.

3. Ukraine repays the loan only if Russia pays reparations in the future.

4. If Moscow refuses, the EU gains a stronger legal basis to redirect the assets.

Why this is legally safer:

• The assets remain frozen, not confiscated.
• The mechanism aligns with long-standing international principles governing reparations after conflicts.
• The collateralization model mirrors historical precedents used after World War II.

Interest income: A partial, but insufficient, solution

The EU has already decided to use windfall interest income generated by Euroclear to provide limited financial support to Ukraine. Although significant, these profits fall far short of Ukraine’s urgent fiscal needs.

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Belgium’s Opposition: The Central Roadblock

Despite broad support within the EU for the reparations loan model, one country stands firmly opposed: Belgium, home to Euroclear.

Belgium’s objection is not political but legal.

Belgium’s Key Concerns

1. Legal liability
   Belgium fears that Euroclear could face extensive lawsuits from Russia under a 1989 bilateral investment treaty, potentially exposing the country to billions in damages.

2. Concentration of risk
   Because Euroclear holds the majority of the frozen funds, any legal challenge would disproportionately affect Belgian institutions.

3. Demand for shared EU responsibility
   Belgium insists on a robust system in which all 27 member states share the legal and financial risks, not just Belgium or Euroclear.

This dispute has made Belgium the central obstacle preventing the adoption of the EU’s new financing package.

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The December Summit: The EU's Three Funding Options

The European Commission has outlined three pathways for ensuring Ukraine receives financial support before the year's end. Each option faces political resistance.

Option 1: Bilateral Subsidies (Least Popular)

Member states would contribute grants from their national budgets.

Problems:

• Immediate fiscal pressure on national governments
• Strong resistance from “frugal” states (Austria, Netherlands, Denmark, Sweden)
• Budget constraints as Europe heads toward economic slowdown

This option is seen as a last resort.

Option 2: Joint EU Borrowing (Politically Divisive)

The EU raises funds collectively on financial markets and loans them to Ukraine.

Issues:

• Requires unanimous consent
• Opposed by fiscally conservative governments
• Reopens political divisions from past debates on COVID-era recovery borrowing

Option 3: The Reparations Loan (Commission’s Preferred Solution)

A single, large EU loan guaranteed by frozen Russian assets.

Advantages:

Avoids immediate taxpayer burden

Aligns with international law
Creates a long-term financing pipeline for Ukraine
Shares risk across the EU

Obstacle: Belgium’s veto unless liability is shared equally.

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Why This Decision Matters: Risks and Implications

The outcome of the EU’s debate will have far-reaching consequences extending well beyond Ukraine.

 A Test of European Unity

If the EU fails to reach an agreement, it risks:

• Undermining its credibility as Ukraine’s principal supporter
• Exposing divisions between Eastern and Western member states
• Weakening its geopolitical influence in the US–EU–Ukraine triangle

A Precedent for International Law

The decision will shape future norms for handling sovereign assets during conflicts.

• A loan framework preserves legal norms
• Full confiscation risks fracturing the principle of sovereign immunity

Global Financial Stability

Central banks worldwide are closely watching the EU’s approach. The safety of sovereign reserves stored in Europe especially those held by non-Western nations may be questioned depending on the outcome.

Ukraine’s Immediate Financial Survival

The IMF warns that without fresh funding:

• Ukraine may face a budget crisis
• Essential government functions could be disrupted
• The war effort could be weakened

The urgency is acute.

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Conclusion: A Defining Moment for Europe

The debate over frozen Russian assets has become a test of the European Union’s legal ingenuity, political unity, and geopolitical resolve. The reparations loan model offers a viable and lawful compromise but Belgium’s concerns highlight the need for sophisticated risk-sharing mechanisms.

EU leaders have only weeks to strike a deal.
For Ukraine, the stakes are existential.
For Europe, the outcome will determine whether the bloc can act decisively in the face of war and whether it can do so without compromising the foundations of international law and global financial stability.

The decision made in December will echo far beyond Brussels. It is a pivotal moment that will influence not only the trajectory of the Ukraine conflict but also the future of European governance and international order.