EU funds €1.5bn of Ukraine aid from proceeds of frozen Russian assets
The European Commission has announced a significant financial initiative aimed at bolstering Ukraine's defense and reconstruction efforts. On Friday, it was revealed that the European Union (EU) will allocate €1.5 billion (approximately $1.6 billion) to support Ukraine, funded by the proceeds from Russian assets that have been frozen within the EU.
Symbolic Use of Frozen Assets
European Commission President Ursula von der Leyen emphasized the symbolic importance of this funding, stating, "There is no better symbol or use for the Kremlin’s money than to make Ukraine and all of Europe a safer place to live." This statement underscores the EU's commitment to using resources derived from Russian assets to enhance security in the region.
Allocation of Funds
The distribution of the €1.5 billion is structured to maximize its impact. A substantial 90% of the funds will be allocated to reimburse EU member states for military aid provided to Ukraine. The remaining 10% will be directed as financial aid to Ukraine, specifically aimed at reconstruction efforts. This dual approach not only supports Ukraine's immediate defense needs but also contributes to its long-term recovery.
Reactions from Russia
In response to the EU's decision, Kremlin spokesman Dmitry Peskov warned that "such steps by the European Commission will not go unanswered," indicating potential repercussions from Russia regarding the EU's financial maneuvers.
Approval and Implementation
The approval for these payments was granted by EU foreign ministers in late June. Germany and the Czech Republic have been identified as the first countries to utilize these proceeds for providing Ukraine with essential air-defense equipment and artillery shells. EU foreign affairs chief Josep Borrell reiterated the EU's commitment, stating, "The EU will stand by Ukraine for as long as it takes," highlighting the importance of both military capabilities and reconstruction funding.
Legal Framework and Financial Mechanism
The funding is derived from the proceeds generated by the frozen assets of the Russian Central Bank in the EU, specifically interest accrued, rather than the assets themselves, which remain immobilized due to EU sanctions imposed in response to Russia's aggression against Ukraine. A statement from the commission clarified that these extraordinary revenues do not belong to Russia and are held by central securities depositories (CSDs). The EU has initiated the process of channeling these revenues to support Ukraine.
The funds had been held by Euroclear, a Brussels-based financial institution, until recently when they were made available to the European Commission for disbursement to Ukraine.
Additional Funding Sources
This €1.5 billion is part of a broader strategy to finance Ukraine's defense, with the EU budget itself restricted from being used for military expenditures. Another significant source of funding is the Ukraine Assistance Fund (UAF), which currently exceeds €6 billion under the European Peace Facility (EPF). However, the EPF is subject to vetoes from member states, and Hungary's opposition to arming Ukraine has complicated the disbursement of these funds.
Overcoming Political Hurdles
The EU's ability to utilize the proceeds from frozen Russian assets required careful navigation of political challenges, particularly Hungary's veto power. A legal analysis determined that Hungary's abstention from the initial May decision allowed the subsequent approval in June to proceed without its veto affecting the outcome.
Conclusion
As the EU continues to support Ukraine amidst ongoing conflict, the allocation of €1.5 billion from frozen Russian assets represents a strategic and symbolic move to enhance security and aid reconstruction efforts. With around €210 billion worth of Russian Central Bank assets frozen in the EU, the potential for further financial support remains significant, as the EU seeks to stand firm in its commitment to Ukraine's sovereignty and stability.