The EU finds a way to make Russia pay for weapons for Ukraine
Under immense pressure to come up with billions of dollars to shore up Ukraine’s military and replenish its members’ dwindling arsenals, the European Union said Wednesday it had devised a legal way to use frozen Russian assets to help arm Ukraine. just as it was considering other mechanisms to strengthen the defense industry.
The developments mark a major milestone, with U.S. funding for Ukraine remaining stuck in Congress and Ukrainian defenses sagging as shortages of ammunition, artillery shells and missiles force rationing on the battlefield.
Although the EU is exploring a number of different ways to find money for defense purchases, they all face hurdles.
The goal of “making Russia pay” for Ukraine’s arsenal and its reconstruction has become a popular slogan among allies, but translating it into actual policy has proven difficult, largely due to legal concerns about liquidating Russian state assets that frozen by sanctions.
Now, after months of political wrangling, the European Commission, the EU’s executive arm, has found a way to use the profits from these frozen Russian assets for Ukraine’s benefit, most of which goes to military aid to Ukraine.
How the plan will work
The plan, which will be submitted for approval to EU leaders meeting in Brussels on Thursday, would provide Ukraine with up to 3 billion euros, or about $3.25 billion, or even 15 billion euros ($16.3 billion) between 2023 and 2027 ) could yield between 2023 and 2027, depending on the situation. market conditions. The first payment to Kiev could be made as early as July, the commission said on Wednesday.
After Russia’s invasion of Ukraine more than two years ago, Western countries took the unusual step of freezing more than $330 billion in Russian central bank assets abroad. The largest part of this – more than 217 billion dollars – is located in the European Union. With payments to Russia blocked by sanctions, Moscow has been unable to access these assets, sell them or benefit from the interest earned on them.
As such, the cash generated from the assets has been stuck abroad, with a large majority in Belgium held by Euroclear, a financial services company. Under the EU plan, 97 percent of the profits generated by these assets would go to Ukraine from February 15. Companies like Euroclear would keep 3 percent to fund ongoing and future lawsuits by Russia seeking to recover its assets and revenues.
This year, 90 percent of that windfall would go to financing weapons for Ukraine, the committee said, while the rest would be set aside for the bloc’s fund for Ukraine’s reconstruction.
“The Russians won’t be very happy,” said Josep Borrell Fontelles, the A top EU diplomat said this this week. The amount of money, he added, “is not extraordinary, but not negligible.”
An earlier version of this plan was postponed twice during 2023 due to disagreements between member states Concerns of the European Central Bank. The bank, the eurozone’s version of the US Federal Reserve, warned that using assets from another country’s central bank could damage Europe’s reputation as a safe place to store money, undermining its ambition bloc could harm the international use of its common currency, the euro.
As Mr Borrell had predicted, the Russians were outraged by the proposal. “This is outright banditry and theft,” Russian Foreign Ministry spokeswoman Maria Zakharova said on Thursday, Russian news agency TASS reported.
Kremlin spokesman Dmitry Peskov was more reserved. “Europeans are fully aware of the damage such decisions can do to both their economy and their image, and their reputation as reliable guarantors of the inviolability of property,” Tass quoted him as saying.
How else can the EU raise money for war and weapons?
Revenue from frozen Russian assets is a start, but the EU will need billions more to continue supporting Ukraine and strengthening its own defense, especially with the looming possibility of a complete break in US aid to Ukraine under the presidency of Trump.
The arsenals of the bloc’s 27 members have been depleted after two years of arms and ammunition transfers to Ukraine. Just as importantly, Europe’s defense industry says it needs more certainty and upfront investment before it can ramp up production.
Building an integrated military industry is new territory for the European Union, which from its inception has been primarily an economic and trade alliance.
But the need for Europeans to invest in defense has become more urgent following recent comments by former President Donald J. Trump, the presumptive Republican presidential nominee. He said last month that he would oppose NATO’s defense of European members who have underpaid for the alliance’s common defense needs, and that he would “encourage” Russia to “do whatever they want” in Europe.
The Europeans have taken note. “Europe has not invested enough in its security and defense for decades,” Charles Michel, the president of the European Council, which sets policy priorities, said in a letter to EU leaders meeting in Brussels on Thursday. “As we face the greatest security threat since the Second World War, it is high time we take radical and concrete steps to be defense ready and put the EU economy on a war footing.
“This means spending more and buying more together, therefore more efficiently,” he added. “We must also help the defense industry access private and public funds.”
At Thursday’s summit, EU leaders will discuss the idea of letting the bloc’s development and climate bank, the European Investment Bank, venture into defense procurement – a major shift in the strategy and purpose of climate change and green energy , highlighting the urgency felt everywhere. the EU to strengthen military capabilities.
Some EU countries would like to see the bloc jointly issue bonds to secure cheap defense financing. But this is not popular among the richer EU countries, especially Germany. The bloc also maintains the European Peace Facility, an off-budget pool of money that is slowly being tapped for defense purchases for Ukraine. France wants this fund to pay only for equipment produced in Europe, which is seen as a major limitation as Europe’s defense industry says it is unable to produce fast enough to meet growing needs.
Meanwhile, EU countries operating outside the EU’s restrictions and structures have been able to move more quickly to support Ukraine, underscoring the bloc’s rigidity. The Czech Republic is leading a buyers group with other EU allies and has already secured 300,000 grenades for Ukraine as supplies are dangerously low.
Biden administration officials have made regular trips to Europe to discuss using Russian resources to help Ukraine. At a meeting of treasury ministers in Brazil last month, Treasury Secretary Janet L. Yellen said direct asset seizures were a possibility and suggested there was a legal justification for it.
But the meeting was marred by divisions among policymakers. Some, such as French Finance Minister Bruno Le Maire, argued that taking assets directly from Russia’s central bank would be a violation of international law.
Eshe Nelson contributed reporting from Frankfurt, and Alan Rappeport from Washington.