The EU’s Radical Idea: Convert Future Russian Reparations Into Cash for Kyiv

According to The Economist, EU policymakers are now seriously considering a radical financial mechanism: turning Russia’s future war-reparation payments to Ukraine into immediate cash for Kyiv. The idea centres on the roughly $300bn in Russian state assets frozen after the 2022 invasion. Until now, the EU has only dared to seize the interest generated by the €200bn held in Europe, about €7bn a year, and repackage it into bonds whose proceeds flow to Ukraine. That is no longer enough.

A proposal developed by Hugo Dixon, Daleep Singh and Lee Buchheit goes much further. Ukraine would gain access to the entire €200bn upfront in the form of a loan. It would only have to repay the money if Russia eventually agrees to pay war damages. The logic is deliberately binary: either the Kremlin pays compensation and thereby “reclaims” its frozen assets, or it refuses, in which case the assets remain frozen indefinitely. Meanwhile, Ukraine receives a vast financial lifeline without EU governments having to put up new funds.

Opponents, including France, Germany and the European Central Bank, warn that the scheme edges uncomfortably close to expropriation and could damage trust in the euro system. Legally, only the UN Security Council or the International Court of Justice can impose reparations on a state, and Russia can block both. Even so, the G7 has already declared that sanctions will not be lifted until Russia has compensated Ukraine, effectively endorsing the “Russia pays first” logic behind the proposal.

The European Commission is now working on a legally robust version of this “reparation loan” that can satisfy ECB concerns. A first outline is expected ahead of the EU leaders’ meeting in October.

As The Economist’s author notes: if the plan can be made legally watertight, it would both punish the Kremlin and provide Ukraine with urgently needed resources — without forcing Europe’s strained budgets to stretch any further. READ MORE HERE.