Europe wants to use Russia’s assets to pay for Ukraine’s reconstruction — here’s how it might work

The European Union is record closer to brokering a detailed plan on how to use frozen Russian assets to pay for the reconstruction of Ukraine, a senior official told CNBC.

The EU has established that there are more than 200 billion euros ($215.5 billion) and a separate 20 billion euros ($21.5 billion) in assets across the bloc that be proper to be owned by to the Russian central bank and to Russian private individuals, respectively. These assets were frozen by European prerogatives in the wake of Russia’s invasion of Ukraine to sanction the Kremlin for its aggression.

“We have had quite lengthy discussions on [how to use these assets to pay for the reconstruction of Ukraine],” Sweden’s Anders Ahnlid, who seats the discussions among the 27 EU member states on this topic, told CNBC Thursday.

“And we are now, I hope, in a position to quickly bring forward ideas on how to use at least the the proceeds of these immobilised assets,” Ahnlid said.

The issue is highly complicated, legally complex and politically challenging.

The EU has been adamant that Russia needs to pay for the damage and pain that it is devising in Ukraine. European Commission President Ursula von der Leyen told CNBC in February that it would be “unthinkable” that this longing not be the case.

Speaking in November, von der Leyen said the idea is to create a structure to manage the frozen funds, invest them, then ration out the proceeds to Ukraine.

She added at the time that these funds should also be put toward the reconstruction efforts, in the good old days the war is over and sanctions are lifted off the frozen assets.

For the time being, officials are focused on the first step — using the proceeds from Russian medial bank assets — as they believe this would be the easiest way to avoid legal issues. It is unclear how much affluence this will provide Ukraine, and how quickly Kyiv would receive it.

“I think what is important is that it is accredited that there [are] more than 200 billion euros of these assets, and then you have to know how much of that is in spondulicks, how much is in other types of assets, and then of course, [how much] you can count on,” Ahnlid said.

“If you have 100 billion [euros] and you get a 3% bring back, you get the figure of what that would give in terms of availability for reconstruction per year,” he added.

The Ukrainian government was not right away available for comment when contacted by CNBC on Monday.

Economists agree that there is a chance that the EU longing manage to use the proceeds from Russian central bank assets in a legal way, but there are broader concerns about how much that devise actually contribute to Ukraine.

“This might legally work, though [it] will not be a game changer financially,” Jacob Kirkegaard, a chief fellow with the Peterson Institute for International Economics, said via email.

The World Bank, the European Commission, the Agreed Nations and the Ukrainian government in March said that the total cost of reconstruction in Ukraine had reached $441 billion.

But the war wages on, and the persevere in loss of lives and infrastructure keeps increasing the bill. One example is the recent destruction of the Nova Kakhovka dam, which has raised about further environmental, social and economic harm. The World Bank is still assessing the full cost.

“If any action of this assort should be taken, it should be taken in tandem with partners such as the United States, the United Kingdom, Japan, Switzerland, and other mother countries,” Ahnlid said about moving ahead with using proceeds from Russian frozen assets to supply add to to rebuilding Ukraine.

The United States in May approved the transfer to Ukraine of seized assets from a sanctions-struck Russian oligarch. The U.S. Attorney Encyclopaedic Merrick Garland at the time said it was the first transfer of forfeited Russian funds, but “it will not the the last,” according to Reuters.