European leaders will descend on Copenhagen on Wednesday for an informal summit under unusual tension. Over the past week, Danes have spotted unmarked drones buzzing over military infrastructure, prompting a nation-wide ban on civilian drone flights and airport closures affecting 20,000 travellers.
Against that backdrop, heads of state and government will wrestle with one of the most consequential financial and and geopolitical decisions of the war: whether, and how, to tap frozen Russian assets to fund Ukraine’s defence.
At stake is over $250 billion in Russian Central Bank money locked up in the EU since 2022. For years, European leaders argued that seizing it outright would breach international law and undermine trust in Europe’s financial sector. But with US funding for Ukraine drying up and European budgets buckling, the political mood is shifting.
The plan: bonds backed by Russia’s money
Alongside wide-ranging discussions on European defence, one of the topics of today's discussion in Copenhagen is a proposal to use $160 billion in frozen Russian cash as collateral for bonds that would finance interest-free loans to Ukraine, a plan championed by German Chancellor Friedrich Merz and Commission President Ursula von der Leyen.
Instead of confiscating the money directly — a move critics say would be in breach of international law — the European Council would direct European banks holding Russian assets to buy a special EU bond. In practice, Russia’s cash would be replaced by a claim on European bonds, repayable in 30 years. But the loan to Ukraine would only have to be repaid if Russia ends the war and pays reparations.
The loan would be funneled to Ukraine in tranches, earmarked for European weapons. If Ukraine defaults after receiving Russian reparations, the EU itself would be liable. The plan would allow Europe to use Russia’s state assets to support Ukraine without touching the funds themselves.
But not everybody is on board. Kremlin courtiers like Hungary’s Viktor Orbán and Robert Fico in Slovakia could scuttle the plan in the Council, where unanimity is typically required — although officials are also hatching a plan to blunt their veto power.
Belgian Prime Minister Bart De Wever has also come out against the plan. Speaking at last week’s UN meeting in New York, he warned “taking Putin’s money and leaving the risks with us. That’s not going to happen…” His concern is obvious, with Euroclear based in Brussels and holding the lion’s share of the frozen assets, any dubious legal maneuver could open Belgium to arbitration claims. Meanwhile, across the channel, the United Kingdom is weighing a similar scheme to leverage the £25 billion ($35 billion) in Russian funds frozen in London.
Why not just seize the assets?
At first blush, the simplest solution would be to confiscate all the frozen money. That approach is championed by Timothy Ash, an associate fellow in the Russia and Eurasia program at Chatham House in London, who believes it’s legally viable as a “countermeasure” under international law. To Ash, grabbing Russia’s cash would send a message to other “bad regimes” that there are real consequences for invading neighbors.
But others insist it would be both illegal and financially destabilizing. From a legal standpoint, Russia is protected under international law via sovereign state immunity, stipulating that states have the right to manage their own affairs — and in this case — their own foreign assets. “Without a court case, it’s a robbery,” said Alexander Kolyandr, a financial analyst and non-resident fellow at the Center for European Policy Analysis. “Europe is not in a direct conflict or a state of war with Russia. You cannot just take this money away.”
President of the European Central Bank Christine Lagarde has warned that seizing Russian assets would spook foreign investors and damage Europe’s reputation as a safe financial haven. However, Kolyandr sees these concerns as overblown by the ECB, pointing out that there has been no capital flight since the freeze began, and the euro has strengthened against other currencies over the course of the war. Additionally, he said that any use of the frozen money would likely go towards the European defense industry, supporting ailing European economies.
Where the money sits
In total, over $300 billion in Russian state assets were immobilized by the US, the EU, and allies like the UK and Japan after the 2022 invasion. The majority — roughly 170 billion euro ($200 billion) — sits in Belgian financial firm Euroclear, making Brussels central to any scheme. Private Russian wealth under sanctions is comparatively small, around $58 billion in 2023.
Belgium has already skimmed interest from the Russian assets held in Euroclear, channeling $8 billion to Ukraine last year, an approach that passed legal tests. Now, the Commission and Merz want to take that a step further with their new plan to use the Russian assets to back bonds.
“This was effectively milking someone else’s cow, and it was very tough for Russia to say anything,” Kolyandr said. “But the question now is how can you use the main body of this money, the cow instead of just the milk?”
Ukraine’s funding gap
According to Ash, Ukraine’s war effort costs about $100 billion per year. For its first three years, Europe and the EU covered two-thirds with the US supplying the rest. But with the US no longer writing checks to Ukraine, Europe has been left alone to foot the bill. Ash doubts that it’s sustainable in the longer term, considering that European countries are facing large budget deficits while being forced to rapidly ramp up military spending. “Is Europe willing to write $100 billion checks to fund Ukraine? I don’t think it’s economically and politically feasible… It’s political suicide for our politicians to keep on doing this.”
That makes frozen Russian assets one of few — or perhaps the only — viable lifeline. By some estimates, it could sustain Ukraine’s war effort for another three years.
Europe’s moment of decision
As expected, Moscow has vowed to fight back. Former President Dmitry Medvedev thundered on Telegram: “If this happens, Russia will persecute EU states, as well as the Eurodegenerates from Brussels and individual EU countries who try to confiscate our property, until the end of time,” while the Russian Embassy in London called the efforts a “pseudo-legal basis” for asset seizure.
In real terms, Russia could indeed file lawsuits in European and international court, or seize the remaining foreign assets inside its borders. However, few assets remain, since Russia already grabbed what little Western property was still in the country at the time of the invasion.
Today’s talks in Copenhagen are also more than a budget debate. They are a test of Europe’s ability to project power without US backing. With the bulk of Russia’s frozen reserves sitting in European banks, this is one of the few levers the EU can pull on its own. The choice will shape not only the war in Ukraine but also Europe’s credibility as an independent power for years to come.
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