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How EU plans to help Ukraine with Russian money

Published:

One year ago,

European Union

member states pledged to deliver one million rounds of ammunition to support

Ukraine

‘s defense efforts against Russia. However, the EU has only been able to fulfill half of this military promise thus far.
Nevertheless, significant financial and political assistance measures were unveiled in Brussels this Wednesday to aid the nation under attack by Russia.

Ukraine to receive €50 billion
The first meeting of the so-called Association Council between the EU and Ukraine since the EU officially announced the commencement of accession negotiations with Ukraine in December was held in Brussels on Tuesday.

Ukrainian Prime Minister Denys Schmyhal presented a plan for reforms and reconstruction of Ukraine amid Russia’s ongoing aggression. Ursula von der Leyen, the president of the European Commission, announced the disbursement of the first installment of €4.5 billion from the EU’s new €50 billion ($54.3 billion) financing instrument for Ukraine, aimed at supporting the war-torn nation’s budget until the end of 2027.
“This is crucial for Ukraine,” von der Leyen told reporters in Brussels.

Schmyhal said his government was “very grateful for the support,” highlighting the importance of the €50 billion financing mechanism for stability. “The EU is now truly on high alert because it knows that its vital interests are at stake.”
EU High Representative Josep Borrell commended Ukraine’s rapid progress towards EU approximation despite operating under wartime conditions. However, the European Commission, the EU’s executive branch, has yet to determine the formal commencement of accession negotiations, which requires unanimous agreement from all 27 EU member states plus Ukraine.
Hungary has repeatedly delayed Ukraine’s accession process, and EU diplomats anticipate resistance or new demands from Budapest in the upcoming steps.
Russian interest earnings to fund weapons for Ukraine
Following a February decision by EU heads of state and governments to seize profits from frozen Russian state assets in the EU for the benefit of Ukraine, the European Commission presented a plan on Wednesday detailing the utilization of profits from Euroclear-held Russian assets for Ukraine’s benefit.
This plan addresses approximately €3 billion in annual interest earnings generated from Russian state bank assets at the Belgian financial services provider Euroclear. Nearly €200 billion of Russian assets were frozen there due to EU sanctions, rendering them inaccessible for withdrawal or transfer by the Russian central bank.
While Ukraine had advocated for a complete confiscation of these funds, the EU opted to seize only the profits from Russian investments, citing legal concerns and the potential damage to international investor confidence in the eurozone. Following extensive deliberations, EU member states agreed to allocate the profits from Russian investments into a special budget known as the “European Peace Facility.”
Funds from this budget will finance arms deliveries to Ukraine, with €5 billion already contributed by EU member states.
To address concerns from the European Central Bank (ECB) about potential financial instability for the private Belgian firm Euroclear and, consequently, the eurozone, Euroclear will retain a portion of the earnings from Russian assets as collateral to meet obligations to other investors and potential legal proceedings.
The ECB fears that Chinese banks or other major investors may withdraw their assets from Euroclear, potentially necessitating a bailout by the Belgian government and triggering a financial crisis in the eurozone. Additionally, Russia could retaliate by seizing Euroclear assets, as approximately €33 billion of the Belgian financial services provider are reportedly held in Moscow.
How the Kremlin reacted to the EU’s plan
The EU leaders are expected to discuss the plan to skim off Russian profits during a summit in Brussels on Thursday. Germany recently abandoned its original resistance to the model. Meanwhile, Belgium has announced that it will transfer the 25% capital taxes due on the Russian profits to Ukraine.
With the possible use of Russian funds to finance Ukrainian arms sales, the EU is breaking new ground. So far, the confiscation of foreign assets of state banks has only occurred after the end of wars, such as after Iraq’s first Gulf War against Kuwait in 1991 or after the end of World War II.
In response to the plan to seize Russian profits, Kremlin spokesperson Dmitry

Peskov

denounced it, warning that it would undermine the West’s reputation as a safe haven for investments.
“The damage will be inevitable. The persons who will be involved in making such decisions, the states that will decide this, of course, they will become the objects of prosecution for many decades,” Peskov said in a statement. The Russian Foreign Ministry spokeswoman condemned the plan as “banditry and theft.”
Farmers’ protests and tariffs
On Wednesday, EU member states also agreed to extend duty-free imports from Ukraine for another year. However, certain agricultural products, including honey, eggs, poultry, sugar, corn, and oats, may face tariffs again starting in June if imports exceed specific thresholds. The policy comes in response to farmers’ protests, especially in Poland, who fear market distortions from cheap Ukrainian imports.
Prime Minister Schmyhal expressed satisfaction with the decisions, noting that Ukraine could not reach or surpass the established caps on critical products, which are based on average values for 2022 and 2023.

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