How Europe could use Russian assets to pay for Ukraine’s reconstruction

The European Union is getting closer to brokering an in depth plan on find out how to use frozen Russian assets to pay for the reconstruction of Ukraine, a senior official told CNBC.

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

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

“And we at the moment are, I hope, ready to soon bring forward ideas on find out how to use at the least the the proceeds of those immobilised assets,” Ahnlid said.

The problem is very technical, legally complex and politically difficult.

The EU has been adamant that Russia must pay for the damage and pain that it’s creating in Ukraine. European Commission President Ursula von der Leyen told CNBC in February that it might be “unthinkable” that this might not be the case.

Speaking in November, von der Leyen said the thought is to create a structure to administer the frozen funds, invest them, then give the proceeds to Ukraine.

She added on the time that these funds must also be put toward the reconstruction efforts, once the war is over and sanctions are lifted off the frozen assets.

In the meanwhile, officials are focused on step one — using the proceeds from Russian central bank assets — as they imagine this might be the best option to avoid legal issues. It’s unclear how much money it will provide Ukraine, and the way quickly Kyiv would receive it.

“I feel what is essential is that it’s confirmed that there [are] greater than 200 billion euros of those assets, after which you will have to know the way much of that’s in money, how much is in other sorts of assets, after which after all, [how much] you possibly can count on,” Ahnlid said.

“If you will have 100 billion [euros] and also you get a 3% return, you get the figure of what that might give when it comes to availability for reconstruction per 12 months,” he added.

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

Economists agree that there’s a likelihood that the EU will manage to make use of the proceeds from Russian central bank assets in a legal way, but there are broader concerns about how much that may actually contribute to Ukraine.

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

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

However the war wages on, and the continued lack of lives and infrastructure keeps increasing the bill. One example is the recent destruction of the Nova Kakhovka dam, which has caused further environmental, social and economic harm. The World Bank remains to be assessing the complete cost.

“If any motion of this type needs to be taken, it needs to be taken in tandem with partners resembling america, the UK, Japan, Switzerland, and other countries,” Ahnlid said about moving ahead with using proceeds from Russian frozen assets to contribute to rebuilding Ukraine.

The US in May approved the transfer to Ukraine of seized assets from a sanctions-struck Russian oligarch. The U.S. Attorney General Merrick Garland on the time said it was the primary transfer of forfeited Russian funds, but “it can not the the last,” in accordance with Reuters.