A €70 billion idea: what the EU's new initiative on frozen Russian assets changes

Last week, it was reported that the European Commission is preparing to present for discussion a new mechanism for using frozen Russian assets.

At first glance, the idea is straightforward: instead of confiscating all the capital, the EU would replace it with bonds and transfer the proceeds to Ukraine.

This approach could provide a way forward for both the EU and Ukraine. It avoids the legal risks of direct expropriation while at the same time sending a strong political signal: Russia is beginning to pay for the war now.

"Confiscation" without confiscation

The total amount of frozen assets of the Central Bank of Russia in the EU is about €200 billion, held mainly in the Euroclear depository in Brussels and Clearstream in Luxembourg.

Until now, the EU has only been able to use the interest income from these funds – the so-called windfall profits. These revenues, fluctuating between €3 and €5 billion per year, have been directed primarily to servicing the G7 loan for Ukraine (ERA, Extraordinary Revenue Acceleration Loans).

The proposed "Reparations Loan" model opens the way to tap not only the interest but also the cash flows generated when Russian bonds mature or deposits expire. At present, these funds automatically go to accounts at the European Central Bank and remain idle. The Commission’s proposal is to exchange them for zero-coupon bonds guaranteed by all EU member states and direct the released liquidity to Ukraine.

In this system, ownership does not change – only the form of storage.

Russia remains the nominal owner, but the liquidity itself is put to work for Kyiv.

In theory, the ceiling of the mechanism equals the full amount of frozen reserves of the Russian Central Bank. In practice, access will be gradual as assets reach maturity. According to experts, this scheme could generate between €50 and €70 billion for Ukraine over the next five years.

Some of these resources could potentially be front-loaded through bond issuance backed by expected future revenues. While not unlimited, this amount would be comparable to Ukraine’s annual defence spending.

Importantly, the proposed structure excludes reinvesting frozen assets in riskier instruments – a key difference from earlier ideas. The EU is not turning the reserves into a speculative fund; rather, the assets remain in a secure "frozen" state. The only change is that part of the cash is replaced by EU-guaranteed bonds, the most reliable debt instrument in the European financial system.

This also sends an important signal to international partners: the EU is not appropriating foreign assets for its own benefit but is creating a transparent mechanism designed exclusively to serve future reparations to Ukraine. This approach minimises the risk of undermining confidence in the euro as a global reserve currency.

Crucially, the instrument allows Ukraine to cover its annual budget deficit of €8–10 billion without imposing direct pressure on the budgets of EU member states. In this way, solidarity with Ukraine becomes less dependent on parliamentary cycles or populist swings, making support more predictable and resilient.

For Kyiv, this is a signal that Western partners are not scaling back assistance but are instead developing innovative tools that can operate even within legal constraints.

For Moscow, it sends the opposite message: even frozen assets are not lying dormant but are gradually being transformed into a resource for Ukraine’s stability.

Challenges and the IMF Factor

The proposed mechanism faces several obvious challenges. Moscow is already preparing to argue that even replacing assets with bonds amounts to expropriation.

The likelihood of lawsuits in international arbitration and national courts is high. Another critical test will be political unity: unanimous support from all EU member states is required to launch the scheme.

Hungary or Slovakia may try to block or delay the process, using it as leverage in broader EU politics.

There is also a reputational risk for the European Union.

If other countries perceive that the EU is prepared to use foreign reserves under any pretext, this could erode confidence among states that hold their foreign exchange reserves in euros. This makes it essential for Brussels to demonstrate that the mechanism is not arbitrary interference in property, but a reparations tool rooted in international law and the principle of aggressor responsibility.

A further dimension makes the proposal particularly timely.

Behind the scenes, a new International Monetary Fund programme for Ukraine is under discussion.

Unlike previous programmes, it is expected to be less focused on structural reforms and more oriented toward maintaining macro-financial stability. In such a framework, the Reparations Loan could play a central role: it would provide the IMF with a predictable, long-term source of external financing without shifting the entire additional burden onto the Fund’s donors or forcing Ukraine to assume new obligations in wartime.

This mechanism could therefore serve as a bridge, connecting IMF credit programmes with Ukraine’s practical financial capacity. It would help sustain the confidence of investors and donors while allowing Ukraine to plan expenditures not just month to month, but for years ahead.

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The Reparations Loan is more than a financial mechanism – it is also a political experiment. It could provide Ukraine with tens of billions of euros over the coming years, closing a critical budget deficit.

At the same time, it will test the EU’s unity and its ability to design legally innovative solutions without undermining its own financial reputation.

For Kyiv, it may become the most stable source of external support in the near future. For Brussels, it represents a test of maturity and responsibility.

And for Moscow, it is a clear signal that even frozen money is being transformed into a weapon against the aggressor.

Serhiy Verlanov,

Member of the Board of the Dnistrianskyi Center,

Head of the State Tax Service (2019-2020)

This material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA / Compensation for War Damages to Ukraine. Phase V: Interim Reparations for Victims of Russian Aggression against Ukraine – Exploring Approaches, Needs and Solutions."