Germany has officially backed efforts within the EU to establish a reparations loan for Ukraine, using cash balances associated with Russian assets frozen in Europe — a shift toward more assertive use of those funds. The move still avoids outright seizing the principal and depends on finding a legally defensible framework.

Details of the EU Plan

The European Commission under Ursula von der Leyen is exploring a structure whereby frozen Russian treasury assets — particularly the cash that accumulated from matured bonds managed by institutions like Euroclear — could back zero-coupon or specially structured EU bonds whose proceeds flow to Ukraine. The capital itself would technically remain unused; instead, only the cash balances or interest income would be employed.

Germany has stated that confiscation of frozen Russian assets could be considered if legally possible, acknowledging the complexity of international law, state immunity, and financial law risks.

Legal, Financial, and Political Risks

Countries like Belgium and Hungary have raised concerns that touching the underlying assets could violate sovereign immunity, create legal claims, and destabilize financial institutions like Euroclear. Belgium’s leadership has warned against using the principal, preferring to stick to using only the income generated by those assets.

Russia has reacted strongly. Former president Dmitry Medvedev threatened “all possible legal and international court action,” calling any seizure theft and warning the move would undermine trust in Western financial markets.

Legal and Financial Stakes of Frozen Assets

There are an estimated €200-€210 billion in Russian central bank assets frozen within the EU, most held via Euroclear in Belgium. These funds are currently immobilised under sanctions imposed since the 2022 invasion. The EU has already used interest income from these assets to back a $50 billion loan to Ukraine.

The reparations loan concept aims to address Ukraine’s financing shortfall while avoiding legal challenges associated with direct confiscation. Legal scholars say the plan hinges on creative structuring so as not to breach international law on state immunity, or to avoid setting precedents that could affect sovereign borrowing or foreign reserves elsewhere.