EU Plan to Use €3 Billion of Russian Funds Faces Test Next Week

(Bloomberg) -- A European Union plan to use the profits generated from frozen Russian central bank assets will face resistance next week when the bloc’s leaders discuss the controversial proposal.

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Some member states are cautious about the plan, particularly a last-minute idea to use the proceeds to buy weapons for Ukraine’s military, according to people familiar with discussions on the proposal.

The European Commission, the EU’s executive arm, is expected to put forward a blueprint as early as March 15 on the next steps in transferring the profits to the bloc’s budget. That plan will be discussed at a summit in Brussels March 21-22, according to a draft of the conclusions seen by Bloomberg.

Western nations have frozen about €260 billion ($284 billion) in securities and cash, more than two-thirds of it in the European Union. The EU expects to generate around €3 billion per year from these frozen assets, other people said, who spoke on the condition of anonymity.

“We have the legal clarity and conditions to allow the use of these revenues to support Ukraine,” EU trade chief Valdis Dombrovskis said on Tuesday. “We are fully committed to moving forward with the next step: to allow redirecting these revenues to the EU budget for the benefit of Ukraine.”

Countries including Ireland, Malta and Luxembourg have said the plan — in particular the intention to use the funds to purchase weapons — deserved a more thorough analysis, said the people. Hungary stressed that the revenue should be allocated to Ukraine’s reconstruction.

European Commission President Ursula von der Leyen first proposed the idea of using the funds to purchase military equipment last month. The commission then discussed the proposal with member states last week, according to the people.

Most of the Russian central bank assets are held in Euroclear, a Brussels-based clearing house that invests that money which may earn as much as €15 billion to €20 billion until 2027, one of the people said. Belgium applies a 25% corporate tax to the profit, which may earn €1.7 billion this year.

Western allies generally agree that the frozen Russian funds should remain off-limits to Moscow unless it pledges to help with Ukraine’s reconstruction. But they’re at odds over whether it’s lawful to seize the assets outright — so the challenge for the EU is to squeeze funds out without depleting them.

France and Germany, along with the European Central Bank, have expressed the most caution. They worry about Russian retaliation targeting European assets there, and also the impact on financial stability and the euro’s status as a reserve currency, Bloomberg reported earlier.

--With assistance from Kamil Kowalcze.

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