Using Russian assets to finance Ukraine’s wartime economy: a European update

By Matthew Parish, Associate Editor

In the use of frozen Russian assets to finance Ukraine’s wartime economy, the EU has moved from principle to practice—but only part-way. Since mid-2024 the Union has channelled the “windfall” interest earned on immobilised Russian central bank reserves to Ukraine, while leaving the principal untouched. The first EU payment drawn from those proceeds arrived in late July 2024, establishing the legal and operational template Brussels now uses. Further tranches followed in 2025, and—crucially—the scheme was yoked to the G7’s Extraordinary Revenue Acceleration (ERA; see below) plan so that the recurring interest stream backs much larger loans. In January the Commission disbursed the first €3 billion of the EU share of that G7-backed facility; by August the EU had booked additional windfall transfers that help service Ukraine’s ERA-related obligations. In parallel, the EU earmarked €1 billion of these revenues for Ukraine’s defence-industrial capacity, signalling that proceeds can support not only budget stabilisation but also the war economy’s ability to produce and procure. 

At the centre of the mechanism sits Belgium’s Euroclear (a central securities depository, facilitating the safe and secure exchange of securities like bonds and equities between buyers and sellers through its settlement systems), where the largest stock of EU-jurisdiction assets is lodged. The interest income generated there by frozen Russian assets—swollen by higher global rates—creates the cash flow that the EU diverts to Ukraine and that the G7 uses to secure long-dated loans. Euroclear’s public reporting through 2025 shows continued, though moderating, earnings on the immobilised reserves; those earnings are the fuel for the ERA architecture and the EU’s own windfall-profits decisions. 

Politically, the headline shift of 2024—agreeing to use windfall proceeds—has held the 27 together. But the next step is harder: scaling the model and locking in multi-year borrowing anchored on those flows without exposing member states or Euroclear to legal or counter-measures risk. The Commission has pressed leaders to settle on a large, multi-year loan envelope financed by the same stream of profits, warning that failure would force costlier fallback borrowing borne directly by national budgets. Belgium, home to Euroclear and therefore potentially subject to most of the legal exposure, has demanded more robust guarantees before signing off on an expanded package; the issue is live on leaders’ agendas this autumn and a European Council meeting in December is due to consider the issue further. 

Legally, the EU has drawn a bright line between using “fruits” of the assets and seizing the principal. The windfall-profits approach rests on the view that the assets remain Russia’s but the income they generate under EU jurisdiction, while those assets are lawfully immobilised for sanctions reasons, may be captured and directed to Ukraine. That narrower theory has withstood internal scrutiny and allied critique, allowing payments to begin. By contrast, outright confiscation of the principal remains contested: Council lawyers and many member states still flag state-immunity and counter-measure hurdles, even as a growing chorus of scholars and some governments argue legal pathways exist—especially under a reparations-for-aggression framing. The debate is no longer theoretical, but the EU has not so far crossed that Rubicon. 

Internationally, the EU’s choices dovetail with the G7’s ERA deal. At Apulia in June 2024 leaders agreed to deliver roughly $50 billion in loans backed by earnings on the immobilised assets, with disbursements staged across several years. The United States assumed a large early tranche to de-risk timelines and politics; the EU’s share runs through its Macro-Financial Assistance and Ukraine Facility channels, and the first EU-managed ERA disbursement landed in January 2025. The point is leverage: a stable stream of several billion euros per year can support a loan book an order of magnitude larger, smoothing Ukraine’s budget over the next few campaign seasons. 

For Kyiv’s war economy the effect is tangible in three ways. First, budget support has helped the state meet baseline obligations—salaries, pensions, critical services—without crowding out defence spending or forcing the National Bank of Ukraine to monetise deficits. Second, the ERA-backed architecture gives predictability across 2025–2027, allowing Ukraine’s Treasury and defence planners to contract with domestic and European industry on longer horizons, including through that €1 billion defence-industry allocation. Third, by tying the future flow of profits to loan servicing, the EU and G7 have created a durable political linkage: the assets remain immobilised until Russia pays reparations, and in the meantime their earnings finance Ukraine’s survival and rearmament. 

Still, the architecture has three vulnerabilities. The first is legal risk—chiefly the possibility of adverse rulings or arbitration triggered by Russia or by private actors affected by collateral measures. That risk is why Belgium, and thus the Council, continues to haggle over indemnities and “who pays if something goes wrong”. The second is rate risk: if euro rates fall, windfall profits shrink, reducing headroom for ERA servicing or new EU loans and requiring either top-ups from national budgets or lower financing to Ukraine. Euroclear’s 2025 earnings slowdown is an early reminder that this stream is cyclical, not infinite. The third is political fatigue risk: maintaining unanimity for any step beyond windfall-profits—up to and including principal seizure for reconstruction—will require either a stronger shared legal doctrine or a major change in the battlefield or diplomatic context. European Parliament researchers have mapped the contending doctrines; none yet commands the consensus needed for a Union-wide confiscation act. 

What, then, is the state of play? In short: the EU’s windfall-profits mechanism is operational, scaled, and now interlocked with the G7’s ERA loans; sizeable tranches have been disbursed and earmarked for both budget and defence-industrial support. Negotiations this autumn focus on enlarging and securing that model for 2026–2027 amidst Belgian concerns about legal backstops. Confiscation of the principal remains debated but unadopted. For Ukraine the mechanism buys time and predictability for a war economy under extreme pressure, even as diplomats and jurists continue the longer struggle over turning Russia’s frozen capital stock itself into reparations.

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How the ERA Loan Mechanism Works

The Extraordinary Revenue Acceleration (ERA) mechanism agreed by the G7 and implemented by the European Union represents a novel fusion of financial engineering and sanctions policy. Its purpose is to convert the predictable but modest stream of profits earned on frozen Russian sovereign assets into a substantial, front-loaded flow of resources for Ukraine’s state budget and defence sector.

At its core, the arrangement rests upon two separate elements: the immobilised principal and the windfall profits. The principal—approximately €260 billion in Russian central-bank reserves frozen in Western jurisdictions after the invasion—remains legally untouchable under prevailing interpretations of international law. What generates liquidity are the interest payments and reinvestment gains on those reserves while they are held, primarily in Belgium’s Euroclear system.

Each month Euroclear accumulates several hundred million euros in interest, depending on European Central Bank rates. Under EU law adopted in 2024, those profits—after deducting a small portion for Euroclear’s operational costs and risk provisions—are transferred to a special EU account administered by the European Commission. There they are designated for two purposes: (1) direct grants to Ukraine through the Ukraine Facility, and (2) servicing debt raised under the ERA plan.

The ERA mechanism, conceived during the G7 summit in Apulia in mid-2024, takes those anticipated annual profits—estimated at roughly €2½–3 billion within the EU jurisdiction—and uses them as collateral for a much larger package of loans in theory repayable only from Russian reparations (which are unlikely in the near to mid-future). The logic resembles that of a long-term infrastructure bond: a stable future revenue stream can underpin immediate borrowing several times its yearly value. G7 finance ministries collectively pledged around US$50 billion in total loans to Ukraine, each tranche proportionally guaranteed by their domestic share of the frozen-asset income.

In the EU’s case, the Commission issues bonds under the existing macro-financial assistance framework, repaid not from member-state contributions but from the continuing flow of Euroclear windfall profits. The first of these EU ERA loans—about €3 billion—was released in January 2025, with additional disbursements scheduled quarterly through 2026. As long as the immobilisation of Russian assets remains in force and interest rates stay positive, the windfall profits should comfortably service the debt and provide a modest surplus for further grants.

This structure achieves three political and economic objectives. First, it front-loads support, allowing Ukraine to access funds now rather than waiting for interest to accrue over decades. Secondly, it avoids drawing directly upon European taxpayers, since the repayment source is Russian-linked income. Thirdly, it locks in a long-term financial tie between the immobilised assets and Ukraine’s reconstruction, reinforcing the principle that Russia’s resources—rather than Western charity—should ultimately pay for the damage caused by aggression.

In practice the ERA scheme has turned what was once a moral statement—the freezing of Russian reserves—into a functional instrument of war-time financing. It does not yet touch the principal of those reserves, but it has transformed their by-products into one of the most significant and politically durable funding streams sustaining Ukraine’s war economy.