Belgium urges Europe to drop plan for frozen Russian assets to aid Ukraine

Belgium has accused the EU of “downplaying” its concerns over a plan to use frozen Russian assets held in Europe to support Ukraine.

“We keep on pleading for an alternative, namely the EU borrowing the amounts needed on the markets,” says Belgian Foreign Minister Maxime Prévot.

The EU’s proposal, which has been championed by the German Chancellor, Friedrich Merz, would see €140bn (£123bn) of Russian state assets held in Belgium transformed into a “reparations loan” to support Kyiv financially next year.

The majority of EU countries support the plan and some have criticised the Belgians for blocking it. Belgium argues such a move would imperil a peace deal in the short term and risk legal action by Russia in the future.

Russia has condemned the proposal and one of its top bankers has threatened the EU with 50 years of litigation if the idea becomes reality.

The European Commission is set to put forward ways of resolving the impasse, but Maxime Prévot has complained the text being tabled on Wednesday does “not address our concerns in a satisfactory manner”.

EU countries have already used profits generated from around €210bn of frozen Russian assets to fund Ukraine’s ongoing defence following the full-scale invasion in February 2022.

But using the assets themselves has proved far more controversial.

EU leaders are set to vote on the reparations loan at a summit in Brussels later this month, but it is far from clear that an agreement will be reached.

Belgium has been the most vocal critic of the scheme because most of the assets frozen by the EU – €185bn – are held at Euroclear, the Brussels-based central securities depositor.

The Belgian government argues it would bear the brunt of any Russian legal action if future problems emerged from an EU loan to Ukraine funded with these assets.

Maxime Prévot says the risks are clear: “If Russia takes us to court it will have every chance of winning and we, Belgium, will not be able to repay those €200bn, because that represents the equivalent of an entire year of the federal budget.”

“It would mean bankruptcy for Belgium.”

Prime Minister Bart De Wever has already written to European Commission President Ursula von der Leyen, complaining that the plan is “fundamentally wrong”.

And, in a seemingly co-ordinated move, the head of Euroclear, Valérie Urbain, has made a similar argument.

De Wever, a Flemish nationalist, said fellow EU countries had to give Belgium a legally binding guarantee that the risk would be shared if the loan to Ukraine collapsed or if sanctions on Russia were to be lifted.

That may be difficult as the European Central Bank has said it would not be able to act as a lender of last resort.

The Belgian prime minister has proposed that the EU provides a €45bn loan to Ukraine for next year by using provisions that can tapped into as part of the 27 member states’ existing shared budget.

But Chancellor Merz of Germany believes that is not the best way forward.

He has said the using frozen Russian assets to support Ukraine is “increasingly urgent” and urged his fellow leaders to rally round the idea.

“Ukraine needs our support. Russian attacks are intensifying. Winter is approaching, or rather, we are already in winter. And in this regard, I hope that we can come to a joint solution within the European Union,” he added.

EU’s foreign policy chief Kaja Kallas agrees. A reparations loan would strengthen Europe’s position against Moscow, she argues, and would serve as an incentive for President Vladimir Putin to come to the peace table.

Veerle Colaert, professor of financial law at KU Leuven University, told the BBC she believed Belgium was justified in its concerns.

“Euroclear has a contractual obligation to pay back the money to the Russian central bank on first demand. The only reason it’s not doing it is the sanctions,” she said.

“If sanctions are lifted and at that moment Euroclear hasn’t got the money because it’s being lent to the EU, Belgium would have to step in, but the amount involved is simply too large. That’s why Belgium wants legally binding, on-demand guarantees from the other member states to share the risk.”

The prospect of foreign reserves held in Europe being tapped for other uses could seriously dent confidence in Europe’s financial system, Ms Colaert added.

She argued the better option would be to raise a loan for Kyiv on the markets.

Of the two possible paths she said,

“In both cases Europe has to reimburse the money. The advantage of taking the money from Euroclear’s frozen funds is that it’s interest free but it is not risk free.”

Russia has promised to retaliate if the European Union uses frozen Russian sovereign assets for a loan to Ukraine.

One of its most prominent bankers, Andrei Kostin, said Moscow would unleash half a century of litigation, should the plan be agreed by the EU.

Mr Kostin who is president-chairman of Vneshtorbank (VTB) – one of the leading state-owned banks in Russia – said it was unacceptable that such funds be give to Ukraine.

“As for the seizure of our money, in the end, we can manage without it” he said. “The only problem is that this money might be used for war, not peace.”

Back in October, EU leaders failed to agree on a plan.

Ursula von der Leyen said at the end of November that the Commission was preparing to present a legal text to the 27 EU countries to outline how the reparations loan would work.

The expectation was that it would have happened by now, but public disagreements seem to have delayed the process.

While Washington and Moscow appear to be dictating the pace of talks, Europe’s member states are still struggling to reach a deal on funding their beleaguered ally.