EU accelerates pace to arm Ukraine with returns from frozen Russian assets

Russian assets frozen by sanctions in the European Union are generating billions of euros in profits.

And when Russia's war against Ukraine is going through one of its most difficult moments, as Kremlin troops prepare for a new major offensive in late spring, the EU is accelerating its pace to use the returns from those funds tied up to arm to Kiev - the most urgent thing - and to finance reconstruction.

A proposal from the EU High Representative for Foreign Policy and Security, Josep Borrell, foresees that the first payment of these funds – which are estimated at around 3 billion euros per year – will be sent this July to the invaded country, according to the draft. of the proposal to which EL PAÍS has had access.

Using these windfall profits to buy military equipment for Ukraine will mean breaking down yet another taboo for the Union.

“The determination to use these revenues to support Ukraine is clear and strong,” the draft text says.

The EU only began to freeze these extraordinary profits in a separate account on February 12, after many procedures and much negotiation on assets frozen by sanctions in the early stages of the invasion.

The community club will draw funds from there to arm Ukraine and rebuild the country.

The goal is for leaders to give a boost to the controversial measure at the European Council meeting this Thursday.

This boost also comes with another round of sanctions on Russian people and entities, but this time on those involved in the judicial process against the opponent Alexei Navalni, who died in an Arctic prison where he was serving 19 years in prison, and also on those responsible for this severe punishment.

The Foreign Ministers of the Twenty-Seven have approved these new restrictions on dozens of people and institutions this Monday, one day after the unopposed elections with which Vladimir Putin remains in power in Russia, harshly criticized by the EU for their lack of impartiality and independence.

The Russian frozen assets initiative – which is not only from the EU, but from the G-7 group (Germany, Canada, the United States, France, Italy, Japan and the United Kingdom, in addition to the Union) – has raised doubts in some Member States due to the impact it may have on the reputation of the euro and the commercial relations of the community club.

It has also sparked concerns about whether using those benefits is crossing the line of being at war with Russia.

But the situation on the front line, where Kremlin troops now have the initiative, and the lack of ammunition for Ukrainian troops have stimulated the idea.

“I won't say that there is unanimity, but there is quite a bit of consensus,” Borrell remarked this Thursday, finalizing the proposal that should outline several legal points that worry some capitals.

The matter had been on the table of the head of European diplomacy and the president of the European Council, Charles Michel, for some time, but the president of the European Commission, Ursula von der Leyen, brought it forward a few days ago, publicly opening a melon that deeply displeases Moscow.

The estimated 3 billion a year windfall profits are small compared to the around 210 billion euros of Russian Central Bank assets – in the form of securities and cash – tied up in the EU, most of them in Euroclear, a securities settlement company that last year alone earned 4.4 billion in sky-high returns thanks to those frozen amounts.

But legal reports note that using those benefits is less problematic than outright seizing the assets, as some partners have suggested.

The designed mechanism that will be proposed to the Twenty-Seven foresees that the financial companies that house these Russian assets retain a percentage, still under discussion, for the management of these funds and also to face possible demands from Russia.

The rest will be channeled into the European Peace Fund (EPF), an intergovernmental fund used to arm Kiev's troops, and the so-called "Ukraine facility," the budget package to finance the invaded country from which the funds to keep it afloat and for reconstruction.

Brussels concludes in its proposal and in the accompanying communication that the immobilized assets generate “an extraordinary and unexpected accumulation” of cash in these financial companies.

Also, that these profits fallen from the sky do not belong to the Central Bank of Russia nor to the financial depositories (or their shareholders) and that, therefore, they can be channeled to Ukraine.

“They do not constitute sovereign assets, therefore, the rules that protect frozen assets are not applicable to this income,” the text says.

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