BRUSSELS — The European Commission wants to use sanctioned Russian cash to fund a new €140 billion loan for Ukraine, according to a note seen by POLITICO.
The plan would give Brussels a workaround to one of the thorniest problems since the beginning of the war: that it can seize the interest generated by Russian assets but not the underlying cash itself, which would make a significant difference to Ukraine’s ability to defend itself and rebuild.
The Commission circulated the note ahead of a meeting of European Union ambassadors Friday, where they will lay the groundwork for next Wednesday’s gathering of European leaders in Copenhagen.
Frustration has been building in EU capitals around the lack of details surrounding the so-called reparations loan, which Commission President Ursula von der Leyen first pitched in her State of the European Union speech Sept. 10.
The bulk of the Russian assets are held by the Brussels-based financial firm Euroclear and are invested in Western government bonds that have matured into cash. The cash is sitting in a deposit account with the European Central Bank.
The idea is for the EU to redirect the cash to Ukraine and “enter into a tailored debt contract with Euroclear at 0 percent interest,” according to the note.
Euroclear holds €185 billion in cash balances linked to the Russian assets, a part of which will pay back a preexisting G7 loan to Ukraine.
The remaining €140 billion will be paid out to Ukraine in tranches and used for “defense cooperation” as well as supporting Kyiv’s ordinary budget needs.
Germany emerged as a key backer of the “reparations loan,” as POLITICO reported earlier this week. German Chancellor Friedrich Merz backed this idea in an op-ed published Thursday by The Financial Times — although Merz said that the loan should only finance military aid.
Separately, the United Kingdom last week proposed its own “reparations loan” using around $25 billion immobilized Russian assets that it holds domestically. Finance ministers from G7 countries are scheduled to meet online next Wednesday to coordinate these initiatives.
The Commission said in the note that its proposal means “this whole operation would not touch the sovereign assets of Russia (i.e. the claim on Euroclear)” and Ukraine would only pay back the loan once Russia ends the war and pays postwar reparations.
Should that happen, the EU would repay Euroclear so that it “would have the necessary cash to honor its liability to Russia,” it said.
The biggest risk now is that an EU country — such as Hungary — would block the renewal of sanctions, which has to be unanimously agreed every six months. That would effectively hand the Russian cash back to Moscow — and leave capitals on the hook to pay back the loan.
To reduce this risk, the Commission suggested in the note to change the sanctions renewal rules from unanimity to a qualified majority.
“This would require a high-level political agreement by all or most Heads of State or Government,” the note said.
