BRUSSELS — Discussions among the EU’s top policymakers have rapidly shifted to how seizing €140 billion in frozen Russian assets can best support Ukraine’s war against Moscow. The top priority: allowing Kyiv to buy weapons. Specifically, European weapons.
The past weeks have seen a dramatic U-turn in political momentum toward sending Russia’s blocked assets in Europe to Ukraine — after years of arguments that the frozen cash should remain untouched, with only the interest being creamed off to help Kyiv.
Now Europe’s leaders are warming to the idea of granting a zero-interest “reparations loan” to Kyiv that should ensure the money is used to buy arms from European manufacturers.
“We need a more structural solution for military support and this is why I have put forward the idea of a reparations loan that is based on the immobilized Russian assets,” European Commission President Ursula von der Leyen said Tuesday alongside NATO chief Mark Rutte. “We will strengthen our own defense industry by ensuring that part of the loan is used for procurement in Europe and with Europe.”
Discussions will come to a head during an informal summit of EU leaders in Copenhagen on Wednesday that will focus on how to spend the sanctioned Russian cash and prevent Kremlin-friendly countries, namely Hungary and Slovakia, from vetoing the plan.
German Chancellor Friedrich Merz’s idea of pressing Ukraine to use the loan to purchase EU-made weapons — as opposed to rebuilding the country’s devastated infrastructure — attracted support from across the Union, according to four officials and diplomats.
The logic of weapons over reconstruction was clear. “If Ukraine loses the war, there will be nothing to rebuild,” said one EU diplomat who, like others quoted in this article, was granted anonymity to speak freely.
While France remains cautious on the legal aspects of the Ukraine loan, it supports Merz’s push to steer the funding toward EU-made military kit, according to an official from French President Emmanuel Macron’s office.
In a further boost, a letter from Sweden and Finland advocates using the €140 billion loan to “contribute to European security and defence capabilities by integrating Ukraine further into European cooperation.” The two Nordic nations stressed the importance of industrial cooperation and said “providing Ukraine with modern military equipment in all domains, based on Ukraine’s needs, is an important part of Europe’s reassurance measures.”
The EU’s souring relations with the U.S. under President Donald Trump have redoubled the bloc’s efforts to look after itself and shore up support to Kyiv.
But other countries are less interested in the military dimension of the loan — and are pushing for Ukraine to have free rein over how to spend the money.
“Ideally [the loan] would be budget support with which Ukraine could decide what to do,” said a senior EU diplomat. “The less earmarking there is on the loan the better it will be.”
The Commission suggested in a written note on Thursday that Ukraine should use the loan to buy European weapons as well as to cover its ordinary budget support — leaving it to leaders to decide on the exact split.
Kyiv is desperately short of money to keep the Russian army at bay, and leaders have just months to find the cash needed for Ukrainian troops. The frozen funds are currently sitting idle in a deposit at the European Central Bank under the guardianship of Euroclear, a financial institution based in Belgium.
Setting a precedent
Deputy finance ministers are still trying to understand the “creative” financial engineering needed to finance the loan, and will be debating the initiative over virtual meetings throughout the week.
Finance ministers will take up the debate when they meet in Luxembourg Oct. 10.
A big sticking point, especially for Belgium, is whether the Commission’s legal reasoning behind the cash grab will hold up in court after Russia’s former president threatened to sue any “euro-degenerates” who dare touch Moscow’s “property.”
The other big question is whether Brussels can use a statement by EU leaders from December to change the sanctions approval rules from unanimity to a qualified majority, thereby cutting Bratislava and Budapest out of the decision-making process.
Lawyers from the Council of the EU told the deputy finance ministers on Tuesday that all legal concerns could be addressed, two people on Tuesday’s call said — a sentiment that is generally shared by Armin von Bogdandy, director at the Max Planck Institute for Comparative Public Law and International Law.
“The text does not say which conditions are applicable for qualified majority voting. So, we’re still in high waters,” said von Bogdandy, who wrote over the summer about overcoming the Hungarian veto when it comes to EU sanctions.
“But I see that such an argument is possible,” he said, noting that the EU treaties allow qualified majority voting in extreme situations, such as when “a member state goes squarely against basic EU solidarity.”
For the Commission to gather enough support, it will need to make a legal argument that doesn’t set a precedent with far-reaching consequences. “They’ll negotiate the legal reasoning … so that member states can say we see that this is very important, in this very narrowly subscribed situation,” von Bogdandy said. “It makes perfect and legitimate sense.”