How frozen Russian assets can be directed to support Ukraine without confiscation

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.

Read more about the idea and its possible consequences in the article by Serhii Verlanov of the Dnistryanskyi Center (the former head of the State Tax Service (2019–2020): A €70 billion idea: what the EU’s new initiative on frozen Russian assets changes. 

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. 

According to experts, this scheme could generate between €50 and €70 billion for Ukraine over the next five years.

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

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.

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.

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.

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.