European Union nations have taken a significant step toward potentially supporting the reconstruction of Ukraine by approving an outline deal to reserve the profits from frozen Russian central bank assets. These assets, worth around 200 billion euros ($216 billion), were frozen in response to Moscow's involvement in the conflict in Ukraine. While the tentative agreement still requires formal approval, it signals a commitment to utilizing these funds to aid Ukraine in rebuilding its war-torn infrastructure.
The EU official, who preferred to remain anonymous until the agreement is legally ratified, stated that the bloc aims 'to start collecting the extraordinary revenues generated from the frozen assets... to support the reconstruction of Ukraine.' However, the specifics of how these funds will be used remain undecided due to legal and practical considerations.
The urgency to provide assistance to Ukraine stems from its ongoing struggle to cope with financial burdens. Aid plans from the European Union and the United States have been delayed due to political considerations, including concerns about maintaining the same level of support as in the initial years of the conflict. EU leaders are set to convene on Thursday to approve a 50-billion-euro ($54 billion) support package for Ukraine, despite opposition from Hungarian Prime Minister Viktor Orban.
While utilizing the unfrozen Russian assets appears to be a practical step forward, some are apprehensive about potential negative consequences, such as the financial weaponization of EU assets affecting the bloc's standing in global financial markets. Thus, there is a need to find an adequate legal framework to pursue these measures, which the Group of Seven allies of Ukraine are currently working on.
The United States and its allies had previously blocked Russia's access to over $600 billion held overseas, including approximately $300 billion belonging to the Russian central bank, in response to Russia's invasion of Ukraine. Additional targeted sanctions have been imposed on Russian companies and individuals associated with President Vladimir Putin. However, the freezing of assets and the current push to utilize them for Ukraine's reconstruction highlight the potential humanitarian and strategic value of these funds.
According to the World Bank's recent assessment in March 2023, the estimated cost of reconstruction and recovery for Ukraine over the next decade is $411 billion, encompassing both public and private funds. Belgium, currently holding the rotating presidency of the European Union, plays a crucial role in these discussions as most of the frozen Russian assets under sanctions are held within its borders. Belgium is already collecting taxes on these assets, with Prime Minister Alexander De Croo announcing in October that approximately 1.7 billion euros ($1.8 billion) in tax collections were available to fund military equipment, humanitarian aid, and contribute to rebuilding efforts.
The approval of the outline deal by EU nations highlights a remarkable shift toward utilizing frozen Russian assets to support Ukraine's reconstruction. While further steps and decisions are necessary, this development demonstrates a collective commitment within the European Union to aid a nation devastated by years of conflict. The next steps involve finalizing the formal approval process and determining the most effective and accountable manner to deploy these assets to benefit Ukraine's recovery and future stability.
