Russia Retaliates at Europe's Plan to Lend Immobilized Moscow's Cash to Kyiv

Ukraine is facing a severe shortage of funding to sustain its military and economy afloat, after nearly four years of full-scale conflict with Russia.

For Europe, the answer to filling Kyiv's budget hole of €135.7bn for the next two years rests with Moscow's immobilized funds located within Belgian bank Euroclear, and European Union officials hope to sign that off at their EU leaders' conference next week.

Moscow's representatives 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 conclusive plan is made.

'Appropriate' to Use Moscow's Funds, Say Ukraine and the EU

All told, Russia has about €210bn of its state reserves frozen in the EU, and €185bn of that is in the custody of Euroclear.

European and Ukrainian authorities contend that money should be used to reconstruct what Russia has laid waste to: EU officials terms it a "loan for reparations" and has proposed a plan to bolster Ukraine's economy amounting to €90bn.

"It's only fair that Russia's frozen assets should be used to reconstruct what Russia has destroyed – and that those funds then becomes Ukraine's," 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 dissatisfied.

Belgium is anxious it will be left with an huge bill if it all goes wrong, and Euroclear head Valérie Urbain argues using the assets could "disrupt the international financial system".

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

Belgium's PM Bart de Wever has presented the EU with a series of "pragmatic, fair, and legitimate conditions" before he will agree to the reconstruction loan scheme, and he has not excluded legal action if it "carries significant risks" for his country.

What is the EU's Proposal?

European Union officials is racing against time prior to next Thursday's summit to finalize a arrangement that Belgium can accept.

So far the EU has avoided accessing the principal funds directly but since last year has paid the "excess income" from them to Ukraine. In 2024 that was €3.7bn. From a legal standpoint, using the interest is deemed safe as Russia is under sanction and the returns are not Moscow's sovereign assets.

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

There are presently two EU plans aimed at furnishing Ukraine with €90bn, to cover two-thirds of its budgetary necessities.

• One is to secure the capital on financial markets, secured against the EU budget as a surety. This is Belgium's preferred option but it demands a unanimous vote by EU leaders and that would be difficult when two member states are against funding Ukraine's military.
• This makes the other option loaning Ukraine cash from the Russian assets, which were originally held in bonds but have now predominantly been converted into cash. That money is an asset of Euroclear located within the European Central Bank.

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

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

If Euroclear incur losses of its own assets in Russia, the shortfall would be covered from assets belonging to Russia's own settlement agency which are in the EU.

If Russia went after Belgium itself, any ruling by a Russian court would not be accepted in the EU.

As an important step, EU ambassadors are set to approve on Friday to immobilise Russia's central bank assets held in Europe indefinitely.

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

The EU ambassadors are set to use an special provision under Article 122 of the EU Treaties so the assets stay blocked as long as an "clear risk to the economic interests of the union" continues.

The Reasons Belgium is Not Yet Convinced

The Belgian government is insistent it remains a committed partner of Ukraine, but sees regulatory pitfalls in the plan and is concerned about being shouldering the repercussions if things do not work out.

A usually fractured political scene in this case has come together in support of Prime Minister Bart de Wever, who is under pressure from other European officials.

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

Although the EU might be able to obtain enough assurances for the loan itself, Belgium is concerned about an further exposure of being vulnerable to extra fines or liabilities.

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

"Financial institutions need to comply with capital and liquidity requirements and shouldn't put all their eggs in one basket. Now the EU is telling Euroclear to do just that.

"Why do we have these financial regulations? It's because we want banks to be secure. And if things turn sour it would be up to Belgium to save Euroclear. That's an additional reason why it's so crucial for Belgium to secure absolute protections for Euroclear."

The European Union Under Pressure from Multiple Fronts

Time is of the essence, warn seven EU member states including those bordering Russia such as the Baltics, Finland and Poland. They believe the frozen assets plan is "the most financially feasible and politically achievable solution".

"It's a matter of destiny for us," warns leading German conservative MP Norbert Röttgen. "If the plan collapses, I don't know what we'll do afterwards. That's why we have to finalize the deal in a week's time".

While Russia is unyielding its money should not be touched, there are added concerns among EU officials that the US may want to employ Russia's frozen billions differently, as part of its own peace initiative.

Zelensky has said Ukraine is coordinating with Europe and the US on a recovery fund, but he is also mindful the US has been engaging with Russia about potential collaboration.

A preliminary version of the US peace plan suggested $100bn of Russia's frozen assets being used by the US for reconstruction, with the US {taking|receiving