In a significant development for European support of Ukraine, German Chancellor Friedrich Merz has proposed a bold initiative to mobilize frozen Russian Central Bank assets to aid the embattled nation. On Thursday, Merz called for the allocation of approximately 140 billion euros (around $164 billion) from these assets to provide Ukraine with essential military equipment, underscoring a critical shift from previous German government stances that were hesitant to touch Russian assets.
This proposal represents a departure from the cautious approach taken by the prior German administration, which, alongside Belgium and France, expressed deep reservations about the legal implications of seizing nearly 200 billion euros (approximately $234 billion) in Russian assets currently held in Western countries. Concerns regarding judicial liability and potential damage to confidence in the euro have long kept these nations from endorsing more aggressive actions against Russian holdings.
Merz’s statement sends a clear message to Russian President Vladimir Putin: Europe is committed to funding Ukraine’s defense with European weapons while potentially appropriating Russian savings. However, experts like Sander Tordoir, chief economist at the Centre for European Reform, note that the nuances of this proposal raise questions about the effectiveness of merely mobilizing funds without outright confiscation of the assets.
The call for action comes on the heels of European Commission President Ursula von der Leyen’s commitment earlier this month to develop a strategy that would enable European nations to fulfill Ukraine’s financial needs without burdening taxpayers. “We must be very clear: This is Russia’s war, and the perpetrator must pay for it,” von der Leyen stated on September 18 during a press conference announcing new sanctions against Russia.
The momentum toward utilizing frozen Russian assets has gained traction, particularly after U.S. President Donald Trump signaled a retreat from direct involvement in the Ukraine conflict. Timothy Ash, a sovereign strategist at RBC BlueBay Asset Management, emphasized that the realization of a significant financing gap for Ukraine has led to a consensus on the necessity of leveraging these frozen assets.
As discussions evolve, European leaders are expected to delve deeper into the details of this plan during an upcoming meeting in Denmark among EU heads of state. This initiative could provide Europe with a vital means to support Ukraine as the United States appears to be stepping back from its previous level of involvement.
While European officials have long been aware of the potential to utilize these assets, the challenge remains to garner widespread support among EU member states. Just days ago, French President Emmanuel Macron reiterated his opposition to outright confiscation but expressed a willingness to explore innovative financing solutions after meeting with Ukrainian President Volodymyr Zelensky at the United Nations.
A critical aspect of this evolving narrative is the determination of Brussels and Berlin to circumvent potential roadblocks from EU members that may resist additional measures. Merz has indicated that a large majority could approve the new financing plan, rather than requiring unanimous consent from all EU states.
The framework currently being developed resembles previous efforts by European nations and G7 members, which have tapped interest accrued from frozen Russian assets to provide modest loans for Ukraine’s immediate financial needs. Proposals under consideration include transferring cash held in Europe to Ukraine in phases and replacing it with long-term EU debt obligations. This approach would keep the underlying assets intact while promptly mobilizing funds for Ukraine.
Another proposal involves EU member states issuing new debt backed by the frozen Russian assets, ensuring that while Russia retains ownership of the underlying funds, the resources can be utilized to support Ukraine. The funds would only be returned to Russia following reparations after the war’s conclusion.
However, a key distinction between Merz’s vision and the broader financing package being formulated by the European Commission lies in the intended use of these funds. Merz advocates for the earmarking of these assets exclusively for defense, aligning with Zelensky’s argument that military support is crucial for Ukraine’s survival. In contrast, the European Commission is considering a more comprehensive financing package that addresses both defense and reconstruction needs.
With additional frozen Russian assets amounting to around $50 billion held by the United Kingdom, Canada, and the United States, there is potential for a more substantial financial commitment to support Ukraine, surpassing the 140 billion euros outlined by Merz.
As the situation develops, Moscow has reiterated its staunch opposition to any moves toward the confiscation of its frozen assets, warning of potential consequences. Nonetheless, many observers believe that the legal arguments against such confiscation are overstated, as Russia’s aggressive actions have undermined its protections under international law.
While the decision not to seize the assets may be disappointing to some, the paramount concern remains ensuring that Ukraine receives the necessary financing to endure and ultimately prevail in the conflict. “It’s disappointing that the assets are not being seized, but the key is that Ukraine has the financing to survive and win the war. And these numbers are big enough to make a difference,” Ash concluded.
