Moscow Retaliates at Europe's Proposal to Lend Frozen Russian Funds to Kyiv

Ukraine is facing a severe shortage of funding to keep going its military and economy, after almost four years of full-scale conflict with Russia.

From the EU's perspective, the remedy to addressing Kyiv's funding gap of €135.7bn for the following biennium is found in frozen Russian assets sitting in Belgian bank Euroclear, and Brussels seek to finalize the plan at their EU leaders' conference next week.

Moscow's representatives warn the EU plan would be an illegal seizure, and the Central Bank of Russia stated on Friday it was suing Euroclear in a Moscow court even before a definitive agreement is made.

'Just' to Employ Russia's Assets, Assert Ukraine and the EU

Overall, Russia has roughly €210bn of its state reserves blocked in the EU, and €185bn of that is in the custody of Euroclear.

The EU and Ukraine argue that that capital should be used to rebuild what Russia has devastated: EU officials calls it a "reconstruction loan" and has proposed a plan to support Ukraine's economy to the tune of €90bn.

"It's only fair that the assets frozen from Russia should be used to reconstruct what Russia has destroyed – and that that capital then becomes ours," remarks Ukraine's Volodymyr Zelensky.

German Chancellor Friedrich Merz argues the assets will "help Ukraine to protect itself efficiently against any future Russian attacks".

Moscow's lawsuit was anticipated in Brussels. But it is not just Moscow that is concerned.

The Belgian government is worried it will be saddled with an huge bill if it all backfires, and Euroclear head Valérie Urbain argues using the assets could "undermine the world's financial order".

Euroclear also has an roughly €16-17bn immobilised in Russia.

The leader of Belgium Bart de Wever has given Brussels a series of "pragmatic, fair, and legitimate conditions" before he will accept the reconstruction loan scheme, and he has not excluded legal action if it "poses significant risks" for his country.

Explaining the EU's Plan?

Brussels is racing against time before next Thursday's summit to finalize a arrangement that Belgium can agree to.

Previously the EU has held off using the assets themselves directly but starting in 2024 has directed the "excess income" from them to Ukraine. In 2024 that amounted to €3.7bn. Juridically, using the revenue is deemed safe as Russia is under sanction and the returns are not property of the Russian state.

But global military support for Ukraine has slipped dramatically in 2025, and Europe has found it difficult to make up the gap caused by the US decision to virtually halt funding Ukraine under President Donald Trump.

There are presently two EU options seeking to supplying Ukraine with €90bn, to finance a large portion of its funding needs.

• Option one is to secure the capital on the markets, backed by the EU budget as a collateral. This is Belgium's favored solution but it demands a consensus by EU leaders and that would be problematic when Hungary and Slovakia oppose funding Ukraine's military.
• The alternative is lending Ukraine cash from the Russian assets, which were initially held in financial instruments but have now mostly matured into cash. That funding is owned by Euroclear located within the European Central Bank.

The European Commission acknowledges Belgium has justified fears and states it is assured it has resolved them.

The scheme is for Belgium to be safeguarded with a insurance encompassing all the €210bn of Russian assets in the EU.

If Euroclear suffer a loss of its own assets in Russia, the shortfall would be covered from assets belonging to Russia's own clearing house which are in the EU.

In the event that Russia targeted Belgium itself, any ruling by a Russian court would not be recognized in the EU.

In a key development, EU ambassadors are poised to endorse on Friday to freeze indefinitely Russia's central bank assets held in Europe indefinitely.

Heretofore they have had to vote by consensus every six months to continue the freeze, which could have meant a ongoing risk to Belgium.

The EU ambassadors are expected to use an extraordinary measure under Article 122 of the EU Treaties so the assets remain frozen as long as an "direct danger to the economic security of the union" continues.

The Reasons Belgium is Still Not Convinced

Belgium is adamant it remains a strong supporter of Ukraine, but perceives legal risks in the plan and fears being shouldering the repercussions if things do not work out.

A normally divided political landscape in this case has rallied behind Prime Minister Bart de Wever, who is being pressured from other European officials.

"Belgium has a modest-sized economy. Belgian GDP is approximately €565bn – consider if it would need to carry a €185bn bill," comments Veerle Colaert, professor of financial law at KU Leuven University.

While the EU might be able to secure enough protections for the loan itself, Belgium worries about an added risk of being vulnerable to extra damages or penalties.

Prof Colaert also believes the requirement for Euroclear to provide a loan to the EU would breach EU banking regulations.

"Banks need to comply with prudential rules and shouldn't put all their eggs in one basket. Now the EU is asking Euroclear to do precisely that.

"What is the purpose of these banking laws? It's because we want banks to be secure. And if things fail it would become the responsibility of Belgium to save Euroclear. That's a further cause why it's so vital for Belgium to obtain ironclad protections for Euroclear."

Europe Facing Strain from Every Direction

Time is of the essence, state a group of EU member states including those bordering Russia such as the Baltics, Finland and Poland. They argue the proposal to use Russian funds is "the fiscally viable and politically achievable solution".

"It is a decisive moment for us," warns leading German conservative MP Norbert Röttgen. "If the plan collapses, I don't know what we'll do next. That's why we have to reach an agreement in a week's time".

Although Russia is unyielding its money should not be accessed, there are added concerns among leaders in Europe that the US may want to use Russia's frozen billions for another purpose, as part of its own peace initiative.

Zelensky has said Ukraine is in discussions with Europe and the US on a rebuilding fund, but he is also cognizant the US has been holding discussions with Russia about possible partnership.

A preliminary version of the US peace plan suggested $100bn of Russia's blocked funds being used by the US for reconstruction, with the US {taking|receiving