EU's €90 billion Russian reparations gamble

The €3.2 billion sent to Kyiv on 25 June did not come from a raid on Russia’s frozen accounts. It was the first instalment of a €90 billion EU loan to Ukraine, raised by the Commission on bond markets (European Commission/EEAS). Russian reserves are central to the design, but they are not the source of the cash. The real exposure sits with EU member states, including Ireland, if Moscow never pays compensation.

How the Loan Actually Works

The Commission borrows from investors and lends the money on to Ukraine. The unusual part is the repayment rule. Ukraine pays back the principal only if Russia eventually pays war reparations or some other compensation. Lawyers call this "limited recourse". In ordinary language, if Russia never pays, the lender is left with the loss (White & Case).

A more direct proposal to transfer Russian reserves to Ukraine ran into legal objections and political resistance inside the EU (Euronews). The compromise is more intricate. Around €210 billion in Russian central-bank reserves, mostly cash and securities held in European financial institutions, remain frozen. Russia cannot move or use them, but it still legally owns them.

The EU then separates the interest and investment returns generated by those frozen assets and channels that income towards Ukraine (European Commission/EEAS, Ashurst). That money helps cover the interest the EU pays on the bonds issued for the loan. The Commission says €3.8 billion in such proceeds has already gone to Ukraine (European Commission/EEAS).

The arithmetic is less tidy than the politics. Member states are paying an estimated €3 billion a year in borrowing costs on the joint debt (Euronews). The income from the frozen reserves also falls as interest rates fall. The ECB, the European Central Bank which sets rates for the eurozone, has been cutting rates. That likely means the frozen reserves will generate less income over time, though the speed of that pass-through is still unclear.

Belgium Sits on the Fault Line

Most of the frozen Russian reserves sit inside Euroclear, the Belgium-based company that settles cross-border financial transactions. When bonds or shares move between countries, Euroclear is the plumbing behind the trade. That makes Belgium unusually exposed.

Belgian Prime Minister Bart De Wever has warned that confiscating the reserves outright, seizing the principal rather than the income, would amount to expropriation without modern precedent. His concern is that such a move could weaken confidence in Euroclear and in the euro’s standing internationally (Ground News). Belgium wants the legal risk shared across all member states before the EU goes further.

That risk is no longer theoretical. Russia’s central bank has challenged the indefinite freeze at the EU General Court in Luxembourg, arguing that it breaches property rights and sovereign immunity (Ashurst). If the court weakens the EU’s legal basis for the freeze, the distinction between using the income and touching the principal could become much harder to defend. Belgium would feel that first.

Who Gains, Who Carries the Bill

Ukraine gains immediately. Prime Minister Svyrydenko confirmed that the €3.2 billion is already in the state budget, helping fund public wages and pensions (Ukrainska Pravda). Two further instalments are expected this year: €3.7 billion in September and €1.45 billion before December (PubAffairs).

EU taxpayers carry the risk if the structure breaks. Repayment depends on Russian reparations that may never come. The income stream depends on interest rates that are already moving down. The legal foundation depends on a court case still unresolved. Europe has built a route towards making Russia pay for Ukraine’s reconstruction. It may also have built a loan that national budgets end up carrying themselves.