Having made a promise to Ukraine, where will the EU get the money and how will it fill Ukraine's huge budget gap, while the bloc's members are facing their own complex difficulties?
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| Profits from frozen Russian assets in Europe are the “secret” behind the €35 billion loan the EU promised to Ukraine. (Source: Getty Images) |
Profits from frozen Russian assets are the “whole truth” behind the €35 billion (over $39 billion) loan the EU promised Ukraine. So how will the EU tap into frozen Russian assets?
From 18 billion Euros to 35 billion Euros?
The European Union (EU) has just announced a new plan to mobilize a loan of 35 billion Euros, transferred to Ukraine to help the country fill the huge hole in the budget left by Russia's military campaign in Ukraine, which is now approaching its 1,000th day without finding a solution. At the same time, Kiev is also facing the risk of energy shortages in the coming winter.
"We understand the huge financial demands that arise from a military conflict. You need to keep the state and the economy functioning, and at the same time strengthen your defense capabilities against Russia's military campaign," European Commission President Ursula von der Leyen said on September 20 during her eighth visit to Kiev since the Russia-Ukraine conflict broke out.
The loan will provide Ukraine with the "necessary financial space" for the government and provide "maximum flexibility" to meet the country's everyday needs, such as paying for healthcare services, purchasing weapons and repairing hacked energy systems, the EC president promised.
The fact that Brussels is providing Ukraine with a new credit line is nothing new, as this has happened regularly since the outbreak of the Russian-Ukrainian military conflict.
But this time, there is one important difference that makes this initiative truly groundbreaking – not only will this new type of loan help the EU solve its aid budget shortfall, but Russia’s “immobilized” assets will serve as collateral for the new loan and be used to make all repayments, exempting Kiev’s budget.
So how is this happening? The idea is rooted in the “make Russia pay” slogan that the West adopted in 2022 to force Moscow to pay the “huge bill” for rebuilding Ukraine left behind by its military campaign.
Financing Ukraine in its protracted and attritional military conflict with Russia is increasingly challenging for the US and the EU. Some Western countries have even struggled to justify continued financial and military support for Ukraine in the face of growing domestic opposition. And as EU allies face tight budgets at home, they have “discovered” an additional source of funding that may not hurt their pockets – the assets of the Russian Central Bank, which the West has declared frozen since the early days of the Russia-Ukraine conflict (February 2024).
Russian assets frozen in Western countries are worth around €270 billion (over $300 billion), of which the bulk (€210 billion) are held in the EU. The Brussels-based Euroclear Depository and Clearinghouse (CSD) is the main holder.
Under international law, sovereign assets cannot be seized. However, the extraordinary revenues they generate are not so protected, so taking advantage of the interest on frozen assets is a much easier approach.
In May, EU member states unexpectedly agreed to use the profits – estimated at between €2.5 billion and €3 billion a year – to support Ukraine’s military and economic reconstruction efforts. And in June, as the situation in the eastern European country worsened, leaders of the Group of Seven (G7) major developed economies signed a pledge to mobilize $50 billion (about €45 billion) in loans to provide immediate relief to Kiev.
The original idea was that the EU and the US would each contribute $20 billion (about €18 billion), while the UK, Canada and Japan would lend the rest until $50 billion was reached.
But Washington has expressed concerns about how Brussels would extend sanctions. Under EU law, restrictions on Russia, from an oil embargo to blacklisting oligarchs, must be extended by unanimous vote every six months. That means a member state, such as Hungary, could at any point block the extension and unload assets – effectively crippling the loan scheme and exposing Western allies to huge financial risk.
The prospect of such a “worst case scenario” has alarmed many Western leaders, slowing down negotiations between EU and US officials, even as the situation in Ukraine worsens. That is why EC President Ursula von der Leyen has “aggressively” promised Kiev a much larger share than originally planned – from just 18 billion euros allocated in the G7 commitment to 35 billion euros – in an attempt to persuade Washington and other allies to act faster.
The plan is especially urgent as the US presidential election is fast approaching and former President Donald Trump’s re-election prospects are looking increasingly bleak for Ukraine, so G7 leaders want to secure funding for at least the next year, or in the event that Trump returns to the White House. The former US president has said he would cut off aid to Kiev if he is re-elected in November.
EU "strategically braces"
Analyst Jacob Kirkegaard, a member of the Brussels-based Peterson Institute for International Economics, assessed that the latest loan announced by Ursula von der Leyen is a sign that the EU is following in the footsteps of the US, gradually "becoming Ukraine's main supporter".
The EU’s approach is that, instead of drawing directly from the 270 billion Euros of Russian assets frozen in Europe, the new plan is to use the profits of this money as collateral for a $35 billion loan to Ukraine. This approach can help the EU shorten the time in the short term, because if only transferring the profits of a few billion dollars each year, it will take a long time and will not be enough to meet Kiev’s huge and urgent needs. Therefore, turning this profit into long-term collateral can help the EU quickly borrow a large amount of money to disburse to Ukraine.
If all goes well, the EC is expected to make the first aid transfers by the end of this year or early 2025, after verifying that Kiev has met a number of policy conditions. All new loans are expected to be disbursed gradually throughout 2025, or in a single disbursement.
In fact, the €35 billion already accounts for more than three-quarters of the G7’s €45 billion package. Under President von der Leyen’s plan, the EC would establish a cooperative lending mechanism for Ukraine – a kind of pool where profits would be generated from a corresponding amount of money. Specifically, when EU allies announce loans and transfer money to Kiev, they would be allowed to tap this pool and receive a share of the extraordinary revenue corresponding to the amount they have lent Ukraine.
Under the plan, the windfall profits will be transferred to the common fund from August 2025. EU allies will be able to use these profits to pay off their debts, including principal, interest and other additional costs. This means that neither the West nor Ukraine will be burdened with payments.
However, analyzing this new type of loan, Expert Jacob Kirkegaard, Senior Fellow at the German Marshall Fund (Belgium) said clearly, "If today you lend based on the mortgage of the future profits of a certain amount of money, you have to ensure that the original assets remain frozen for the next 10-20 years. Therefore, someone needs to ensure that the assets related to the "mortgage plan" will not be returned to Russia during this period".
This is also the reason why US officials are concerned, when every 6 months, the EU has to vote to approve sanctions against Russia according to the law. And they want to urge the EU to "pass a law to extend the period of freezing Russian assets" to about 36 months.
Analysts point to the veto power of Hungary, an EU member that has long been seen as going against the bloc’s common norms. In fact, unlike a regular loan, this one would have to be agreed upon by consensus, meaning that Hungarian members could completely derail the overall idea by sticking to their own rules to maintain their political leverage.
Thus, even if member states support the EC's approach, the reality is that Hungary can still retain a veto over frozen Russian assets at any time.
Analysts also warn of complications with the loan, if Russia regains control of the frozen assets or the profits, the “35 billion euro plan” could go bankrupt. In the worst case, the final guarantee remains the EU's common budget.
In that context, as observers commented, it is difficult to understand that the EU is showing strong support for Ukraine and taking a "tough" stance towards Russia if this is not a "tactical strain" with the hope of putting pressure on Moscow to help strengthen the EU's position in the conflict.
Source: https://baoquocte.vn/su-that-ve-35-ty-euro-eu-hua-chuyen-cho-ukraine-thieu-tien-brussels-gong-minh-lam-dieu-nay-voi-tai-san-nga-287330.html
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