Russia Retaliates at the EU's Scheme to Lend Frozen Russian Funds to Kyiv

Ukraine is running out of cash to keep going its armed forces and economy, after nearly four years of full-scale conflict with Russia.

For Europe, the remedy to plugging Kyiv's financial shortfall of €135.7bn for the next two years lies in assets belonging to Russia that are frozen located within 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 confiscation, and the Central Bank of Russia declared on Friday it was taking to court Euroclear in a Moscow court even before a conclusive plan is made.

'Only Fair' to Employ Russia's Funds, Argue Kyiv and Brussels

All told, Russia has approximately €210bn of its funds blocked in the EU, and €185bn of that is in the custody of Euroclear.

The EU and Ukraine argue that money should be used to rebuild what Russia has destroyed: Brussels terms it a "reconstruction loan" and has proposed a plan to support Ukraine's economy valued at €90bn.

"It is only just that the assets frozen from Russia should be used to reconstruct what Russia has destroyed – and that money then becomes Ukraine's," remarks Ukrainian President Volodymyr Zelensky.

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

The legal move by Moscow was expected in Brussels. But it is not just Moscow that is concerned.

The Belgian government is worried it will be left with an huge bill if it all goes wrong, and Euroclear CEO Valérie Urbain warns using the assets could "undermine the world's financial order".

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

The leader of Belgium Bart de Wever has presented the EU with a series of "logical, sensible, and warranted conditions" before he will accept the reconstruction loan scheme, and he has left open the possibility of legal action if it "presents significant risks" for his country.

The Details of the EU's Proposal?

Brussels is under pressure prior to next Thursday's summit to agree on a compromise that Belgium can agree to.

Until now the EU has refrained from touching the principal funds directly but starting in 2024 has directed the "excess income" from them to Ukraine. In 2024 that totaled €3.7bn. Juridically, using the interest is deemed less risky as Russia is sanctioned and the earnings are not property of the Russian state.

But foreign defense assistance for Ukraine has slipped dramatically in 2025, and Europe has struggled to cover the gap caused by the US decision to virtually halt funding Ukraine under President Donald Trump.

There are presently two EU options aimed at providing Ukraine with €90bn, to finance two-thirds of its financial requirements.

• Option one is to raise the money on capital markets, secured against the EU budget as a collateral. This is Belgium's preferred option but it demands a agreement by all by EU leaders and that would be difficult when two member states object to funding Ukraine's military.
• That leaves lending Ukraine cash from the Moscow's immobilized capital, which were originally held in financial instruments but have now mostly turned into cash. That funding is an asset of Euroclear held in the European Central Bank.

The EU's executive acknowledges Belgium has valid worries and says it is assured it has addressed them.

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

Should 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.

Should Russia targeted Belgium itself, any ruling by a Russian court would not be accepted in the EU.

As an important step, EU ambassadors are poised to endorse on Friday to immobilise Russia's central bank assets held in Europe for the foreseeable future.

Previously they have had to vote all together every six months to continue the freeze, which could have meant a ongoing risk to Belgium.

The EU ambassadors are expected to use an emergency clause under Article 122 of the EU Treaties so the assets continue to be immobilized as long as an "clear risk to the economic interests of the union" continues.

The Reasons Belgium is Not Yet Convinced

Belgium is adamant it remains a committed partner of Ukraine, but identifies legal risks in the plan and worries about being shouldering the repercussions if things go wrong.

A typically partisan political environment in this case has united behind Prime Minister Bart de Wever, who is facing pressure from European colleagues.

"Belgium is a small economy. Belgian GDP is about €565bn – think about if it would need to shoulder a €185bn bill," says Veerle Colaert, academic specializing in financial regulation at KU Leuven University.

Although the EU might be able to arrange adequate guarantees for the loan itself, Belgium fears an added risk of being vulnerable to extra legal costs.

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

"Banks need to adhere to stability regulations and shouldn't put all their eggs in one basket. Now the EU is instructing Euroclear to do precisely that.

"Why do we have these financial regulations? It's because we want banks to be stable. And if things fail it would fall to Belgium to rescue Euroclear. That's an additional reason why it's so crucial for Belgium to secure water-tight assurances for Euroclear."

Europe In a Difficult Position from Every Direction

The situation is urgent, warn seven EU member states including those closest to Russia such as the Baltics, Finland and Poland. They argue the proposal to use Russian funds is "the financially feasible and practically possible solution".

"It is a decisive moment for us," states leading German conservative MP Norbert Röttgen. "Should we not succeed, I don't know what we'll do next. That's why we have to finalize the deal in a week's time".

While Russia is insistent its money should not be touched, there are further worries among EU officials that the US may want to use Russia's frozen billions in another way, as part of its own peace initiative.

Zelensky has said Ukraine is working with Europe and the US on a reconstruction fund, but he is also mindful the US has been engaging with Russia about future co-operation.

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