Ukraine’s financial crisis resurrects Europe’s bitter dilemma on Russian frozen assets

Ukraine is facing a financial gap of $27bn [€24bn] to survive the rest of the year, at a time when Russia’s continuous attacks and Kyiv’s shortage of air defences have shrunk the country’s economy and made living in Ukrainian cities very difficult. This was the bad news Volodymyr Zelensky delivered to allies on Ukraine’s Independence Day last month, reportedly surprising European officials. The dire financial situation of Ukraine, ahead of what is expected to be a difficult winter with another Russian mobilisation possible, has reopened the discussion on whether to use Moscow’s frozen assets. Let’s recap. In 2022, the EU decided to prohibit any transactions related to the Central Bank of Russia’s (CBR) reserves and assets, de facto ’freezing’ €210bn in assets held in Europe. These assets have since been producing “windfall” profits of about €3bn to €5bn annually, which the EU (in line with the G7) has been giving to Ukraine since October 2024. By October 2025, leaders were discussing using the frozen assets to fund a €140bn loan to Ukraine for 2026-2027. The idea was to set up a reparation loan, which Ukraine would be only obliged to repay if Russia eventually pays war reparations, in a bid to avoid an outright confiscation. But Belgium, home to the depository Euroclear (which holds most of the frozen funds), pushed back, saying it was against international law and would expose Euroclear to severe Russian legal retaliation and financial risk. Plan B came into play after EU leaders failed to agree on using frozen Russian assets, instead opting for a €90bn fund backed by joint EU borrowing. An amount that was supposed to suffice for both 2026 and 2027 — but that is becoming more and more of an illusion, which has prompted the EU to call on countries like Canada and Japan to "step up to the plate” from 2027. The EU disbursed the first €3.9bn payment to Ukraine for drones and air defence in June, followed by another €4.6bn throughout July. Now Ukraine has asked Brussels to fast-track the next tranche (some €3bn), after EU capitals greenlit last week the use of such funds to buy Patriot air defence systems. Where's the money going? But some European diplomats have questioned whether the money is being spent efficiently or whether Kyiv's needs are being overestimated. The war in Ukraine is becoming more expensive every year — and beyond the fighting itself, the country is facing a multimillion reconstruction bill and a difficult winter ahead that acts as a cost multiplier. But what is clear is that if nothing is done, Ukraine will face a very difficult situation, putting Russia in the driving seat for any future potential negotiation. Against this dire situation, and with national budgets under strain and the far right surging across Europe (and with France possibly no longer being one of Ukraine’s biggest allies in 2027 if Marine Le Pen wins), the debate over frozen funds is back on the table. And so in recent weeks, several member states (including Poland, Spain, the Netherlands, and Sweden) and MEPs have called on the European Commission to revisit the idea of using the Central Bank of Russia's assets for Ukraine. New plan In August, three former senior officials proposed transferring the frozen Russian assets from Euroclear to the EU while shielding Belgium from legal liability, a plan they argued was legally possible. "The immobilised Russian accounts should be transferred to a new EU instrument acting as a custodian and shouldering all legal obligations to the Central Bank of Russia. This is a decision that can be taken under Article 122(1) TFEU and must be considered urgently," a cross-party group of MEPs said in a letter on Thursday (10 September). But experts warn that any sort of confiscation of the Central Bank of Russia's assets still carries significant risks: potential litigation and, more important, the knock-on risk of undermining the euro and broader monetary stability. And the issue is that this money also plays into Donald Trump’s business games. Last week, Trump said on social media that he would ask Europeans to repay all the American aid given to Ukraine under the Joe Biden administration. Under his 28-point peace plan, developed in 2025 without consulting Ukrainian or European allies, Trump proposed that $100bn of the frozen assets should be invested in Ukraine's reconstruction under US control, with half of the profits going to America. The rest would be used for Russian-American projects. Using the frozen assets now could provide a lifeline for Ukraine, but it would not come without significant risks or costs. It would also ensure that neither Washington nor Moscow can use them as leverage in the future. But neither would Europe be able to play with that leverage in a negotiation where it has so few cards to play.