Russia Retaliates at Europe's Proposal to Loan Frozen Russian Funds to Kyiv

Ukraine is facing a severe shortage of funding to maintain its armed forces and economy, after close to 48 months of Russia's full-scale war.

For Europe, the remedy to filling Kyiv's budget hole of €135.7bn for the following biennium rests with assets belonging to Russia that are frozen located within Belgian bank Euroclear, and European Union officials aim to finalize the plan at their Brussels summit next week.

Russian officials caution the EU plan would be an illegal seizure, and the Central Bank of Russia stated on Friday it was initiating legal action against Euroclear in a Moscow court ahead of a final decision is made.

'Appropriate' to Employ Russia's Funds, Argue Kyiv and Brussels

In total, Russia has about €210bn of its assets immobilized in the EU, and €185bn of that is in the custody of Euroclear.

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

"It is only just that the assets frozen from Russia should be used to rebuild what Russia has devastated – and that those funds then becomes ours," says Ukrainian President Volodymyr Zelensky.

Chancellor Friedrich Merz says the assets will "allow Ukraine to defend itself efficiently against future Russian attacks".

The legal move by Moscow was foreseen in Brussels. But it is not only Moscow that is unhappy.

The Belgian government is anxious it will be burdened by an enormous bill if it all fails, and Euroclear head Valérie Urbain warns using the assets could "destabilise the world's financial order".

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

The leader of Belgium Bart de Wever has given Brussels a series of "logical, sensible, and warranted conditions" before he will endorse the reconstruction loan scheme, and he has refused to rule out legal action if it "carries significant risks" for his country.

The Details of the EU's Proposal?

European Union officials is racing against time before next Thursday's summit to finalize a solution that Belgium can support.

Previously the EU has avoided using the principal funds directly but starting in 2024 has paid the "extraordinary revenues" from them to Ukraine. In 2024 that totaled €3.7bn. Juridically, using the revenue is seen as safe as Russia is subject to sanctions and the earnings are not Moscow's sovereign assets.

But foreign defense assistance for Ukraine has declined sharply in 2025, and Europe has struggled to make up the gap resulting from the US decision to virtually halt funding Ukraine under President Donald Trump.

There are currently two EU plans designed to furnishing Ukraine with €90bn, to cover a majority of its budgetary necessities.

• Option one is to raise the money on financial markets, secured against the EU budget as a collateral. This is Belgium's preferred option but it needs a consensus by EU leaders and that would be problematic when Budapest and Bratislava object to funding Ukraine's military.
• The alternative is loaning Ukraine cash from the Russian assets, which were originally held in securities but have now predominantly turned into cash. That capital is owned by Euroclear deposited at the European Central Bank.

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

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

Should Euroclear suffer a loss of its own assets in Russia, the loss would be compensated from assets belonging to Russia's own settlement agency which are in the EU.

In the event that Russia went after Belgium itself, any decision by a Russian court would not be accepted in the EU.

In a significant move, EU ambassadors are set to approve on Friday to permanently block Russia's central bank assets held in Europe indefinitely.

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

The EU ambassadors are expected to use an emergency clause under Article 122 of the EU Treaties so the assets stay blocked as long as an "immediate threat to the financial well-being of the union" continues.

Why Belgium is Remains On Board

The Belgian government is insistent it remains a strong supporter of Ukraine, but identifies regulatory pitfalls in the plan and fears being shouldering the repercussions if things do not work out.

A usually fractured political scene in this case has rallied behind Prime Minister Bart de Wever, who is facing pressure from other European officials.

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

Although the EU might be able to arrange enough protections for the loan itself, Belgium worries about an additional danger of being subject to extra damages or penalties.

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

"Lenders need to adhere to stability regulations and shouldn't concentrate risk. Now the EU is telling Euroclear to do exactly that.

"What is the purpose of these financial regulations? It's because we want banks to be stable. And if things turn sour it would fall to Belgium to save Euroclear. That's an additional reason why it's so crucial for Belgium to secure water-tight protections for Euroclear."

The European Union Under Pressure from Every Direction

Time is of the essence, state seven EU member states including those neighboring Russia such as the Baltics, Finland and Poland. They believe the proposal to use Russian funds is "the financially feasible and practically possible solution".

"It's a matter of destiny for us," warns leading German conservative MP Norbert Röttgen. "If we fail, I don't know what we'll do next. That's why we have to succeed in a week's time".

Although Russia is adamant its money should not be touched, there are further worries among leaders in Europe that the US may want to use Russia's frozen billions for another purpose, as part of its own diplomatic proposal.

Zelensky has indicated Ukraine is coordinating 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.

An initial document of the US peace plan referred to $100bn of Russia's blocked funds being used by the US for reconstruction, with the US {taking|receiving