EU stuck in circular debate over raising financial support for Ukraine

Reparations Loan ‘watertight’ but no member wants to vouch for it

- Jonathan Eyal

European Union ministers are meeting in the Belgian capital on Nov 13 to tackle one of their continent’s most pressing problems: raising financial support for Ukraine, as the country battles Russia’s military invasion.

Ukraine is estimated to need between €130 billion (S$196 billion) and €140 billion to finance its defences and war-shattered economy over the next 18 months. In the absence of US support, European governments have only two options: either seize Russian assets currently frozen in Western countries and transfer the proceeds to Ukraine, or borrow the money on world financial markets.

Both options remain unappealing. Seizing Russia’s money is an unprecedented step with profound global legal implications. But saddling heavily indebted European governments with further borrowing remains equally dangerous.

In February 2022, when Russian President Vladimir Putin ordered his all-out invasion of Ukraine, an estimated €270 billion of Russian government investments remained in various Western countries. The largest share of this – approximately €180 billion – is with Euroclear, a Belgium-based company providing financial depository services to the world’s national banks and institutions.

The money belongs to various Russian sovereign wealth funds and deposit schemes and, under current international legal provisions, cannot be touched. Nonetheless, Russia’s funds were frozen by various sanctions that Western governments rolled out against Russia in 2022.

The move was then considered revolutionary, representing the absolute maximum of what could be contemplated under international law: The money remained Russia’s property, yet could not be accessed by the Russian government until the end of the war.

As time went by, most of Russia’s frozen sovereign funds, which were initially in various financial security instruments, have matured and become cash.