EU devises scheme to squeeze more profit from Russian frozen assets

BRUSSELS ― The European Union is looking to extract billions of extra euros from frozen Russian assets by moving them into riskier investments — via a plan that would increase aid to Ukraine while avoiding accusations of stealing Moscow's money.

The EU executive is considering transferring almost €200 billion of frozen Russian state assets held in Belgium into a new, riskier investment fund that would pay out higher interest, four officials with knowledge of proceedings told POLITICO.

The goal is to generate more profits to help keep Ukraine’s war-battered economy afloat amid U.S. president Donald Trump’s threats to halt funding. The assets were frozen in 2022 in response to Russia's full-scale invasion of Ukraine.

However, the move would stop short of confiscating the Russian assets altogether — which is opposed by several EU states including Germany and Italy over financial and legal concerns.

By only spending the interest and leaving the underlying capital untouched, the EU hopes it can avoid accusations of breaching international law.

Members of the G7 group of industrialized countries last year agreed to give Ukraine €45 billion generated by investing the immobilized sovereign assets.

The EU’s €18 billion share of the G7 loan, however, will be entirely paid out by the end of the year ― raising questions on how Ukraine’s funding needs will continue being met in 2026.

Finance ministers from the EU’s 27 countries will kickstart these discussions on Thursday at an informal dinner in Luxembourg.

“It is important that we hear from the Commission on the available options, especially regarding the potential use of frozen Russian assets and further steps regarding the sanctions regime,” the rotating Polish Council presidency, which organized the dinner, wrote in the invitation letter to ministers seen by POLITICO.

Poland also suggested that the EU’s new defense loan scheme, SAFE, can be used by countries to buy weapons for Ukraine.

Thursday’s meeting will set the scene for months of tense discussions as European capitals with overstretched budgets are increasingly torn between continuing to support Ukraine and delivering on domestic priorities.

The EU’s workaround

As a potential workaround, EU officials are considering transferring the assets from Euroclear in Belgium to a “special purpose vehicle” under the EU's umbrella.

The main advantage of creating the new fund quickly is that the assets could then be assigned to riskier investments capable of generating much higher returns for Ukraine. The officials did not say exactly what sort of investments these might be.

Under its rules, Euroclear is obliged to invest the assets — many of which have now matured into liquid cash — with the Belgian central bank, which offers the lowest risk-free rate of return available.

In 2024, the windfall profits generated by such investments amounted to €4 billion, which was later earmarked to service the G7 loan to Ukraine.

Supporters of the new investment fund argue that the EU has to generate more revenues from Russia’s sovereign funds to bolster Ukraine in the long term amid a protracted standoff in the peace talks with Moscow.

Another potential advantage is that it could prove a useful shield against the risk that Hungary might veto the sanctions renewal and effectively hand back the money to Russia.

The Russian assets are blocked under the EU’s sanctions regime — which must be unanimously renewed every six months — and the Hungarian government has repeatedly threatened to use its veto as a sign of goodwill towards the Kremlin.

Over the past weeks, the Commission held informal talks with a group of countries — including France, Germany, Italy and Estonia — to examine legal ways to keep the assets frozen if Hungary blocks the sanctions renewal, two officials with knowledge of proceedings told POLITICO. But the working group did not devise a workaround to achieve this outcome.

Tough budget arithmetic

EU officials are looking for ways to set up the new fund by simple majority — as opposed to unanimity — to sideline Hungarian Prime Minister Viktor Orbán.

Critics of the new funding vehicle, however, warn that EU taxpayers will ultimately have to pay compensation for any unproductive investments that are made.

The EU is looking for creative solutions as its central €1.2 trillion cash pot — which governs all public spending — is overstretched and the new budget will only come into force in 2028.  

“It’s not going to be easy to find money under the current MFF [multiannual financial framework],” said an EU diplomat.

A large part of the EU’s €50 billion cash pot to Ukraine, which was agreed in 2023 and was set to last until the end of 2027, has already been spent.

Besides the economic constraints, officials are skeptical about the idea of further topping up the EU’s central budget as this requires unanimity — and Hungary is likely to hold out.