Commission plan

EU: Russian money for Ukrainian weapons

Ukraine urgently needs weapons and ammunition.

(Bild: AP)

The EU Commission wants to use interest income from Russian assets in Europe to finance the purchase of weapons and ammunition for Ukraine. Legally tricky. And risky. Not only because of a possible reaction from Moscow.

Shortly before the start of the EU summit in Brussels, the Union is sending a strong, but also risky signal to Moscow. The EU does not (yet) have the military power to exert pressure on the Kremlin. But it does have economic power.

At the end of 2023, the idea of using Russian assets stored in Europe to support Ukraine was first mooted in Brussels. While it was initially about reconstruction, leading European politicians are already speaking plainly: it's about buying weapons for Ukraine.

EU Commission President Ursula von der Leyen and EU High Representative for Foreign Affairs Josep Borrell

(Bild: APA/AFP/Kenzo TRIBOUILLARD)

EU Commission President Ursula von der Leyen told the European Parliament on February 28: "The time has come for us to discuss the use of frozen Russian assets for the joint purchase of military equipment for Ukraine. There could be no stronger signal and no better use for these assets than to use them to make Ukraine and the whole of Europe a safer place to live."

Josep Borrell, who said when he took office in 2019 that Europe must "learn the language of power", called for 90 percent of the frozen Russian funds to be used to buy weapons for Ukraine. The remaining ten percent should be transferred to the EU budget to support the Ukrainian arms industry.

And even the German Chancellor Olaf Scholz, known as a procrastinator, announced last Friday at the meeting of the "Weimar Triangle" with French President Emmanuel Macron and Polish Prime Minister Donald Tusk that he would "use Russian assets frozen in Europe to buy weapons in the future". A government spokesperson from Berlin confirmed at the request of "Krone": "With his statement, the Federal Chancellor was referring to windfall profits that accrue in the EU on frozen Russian state assets. With its decision of January 29, 2024, the Council of the EU has created the basis for using these to support Ukraine. The Commission must first submit a proposal for their specific use, which must then be adopted unanimously by the Council."

So Russian money is being used to buy weapons for Ukraine to shoot at Russians?

No, says the EU Commission, which will present its proposal in good time before the EU summit, according to media reports. Frozen Russian assets in the West amount to 260 billion euros. Two thirds of these are held in the EU by the Belgian financial services provider Euroclear. These assets remain untouched. But the interest that accrues on these assets is placed in a separate account so that the money does not flow back to Russia if the sanctions are lifted at some point. This amounts to around three to four billion euros per year. The EU members already unanimously agreed to this step in February.

Russian assets worth billions are stored at the ECB.

(Bild: Nitschmann, Hans-Joachim/stock.adobe.com)

But how can the EU confiscate the interest? An EU legal expert explains that this interest only accrues anyway because the money has been frozen and sanctions have been imposed. This is called "extraordinary income". That's why it's not money that Russia is entitled to. Legally important. And also covered by the contracts between Euroclear and the Russian central bank. The money then flows into the European Peace Facility (EPF). The EU set up this budget two years ago. It runs outside the EU budget, but is financed by member state contributions. This allows the EU to buy weapons and ammunition from third countries for Ukraine, for example, without violating EU treaties.

How this money is used will nevertheless remain the subject of debate. Neutral states such as Ireland do not want to agree to the purchase of weapons, but want to use the money for mine-clearing equipment, for example. The Commission's proposal will be discussed at the EU summit on Thursday and Friday.

Kremlin leader Putin will react to the EU plan.

(Bild: APA/AFP/NATALIA KOLESNIKOVA)

Nevertheless, it remains a delicate matter. In an initial reaction, Moscow described the Commission's plan as "theft". There are now hardly any Western assets in Russia, but the nationalization of private investments will continue, as has already happened with Carlsberg, Danone or OMV's share packages in a West Siberian natural gas deposit at the end of 2023.

It would be a step with a strong signal effect. But a risky one. Brussels must take into account the risk of losing the confidence of other countries such as China or countries in the Arab world to hold their currency reserves in euros. That damages the value of the euro.