Europe’s leaders to the East are piling pressure on the EU to release hundreds of billions of dollars worth of frozen Russian assets to fund Ukraine’s war effort as relations with the U.S. deteriorate.

Leaders from Poland, Estonia, and Finland have in the last week added to growing calls to liquidate Russian central bank reserves, which have been valued between $200 billion and $300 billion.

Russian central bank reserves located in Europe—including currency, gold, and government bonds—were seized as part of wide-ranging sanctions against the country when Russia launched its February 2022 invasion of Ukraine.

To date, they have stayed put owing to questions over the legality of unlocking the funds, nerves over the ramifications of unlocking them, and their alternative potential as a bargaining tool in peace talks.

In July last year, the G7 nations agreed on a landmark deal to use the proceeds from the profits of Russia’s frozen assets to fund Ukraine’s defense effort, which helped fund a €50 billion loan to the country, but that is where progress has stopped.

European leaders pile on the pressure

The urgency to unlock new avenues for funding has accelerated since Donald Trump’s inauguration in January, after the U.S. president excluded Europe and Ukraine from initial peace talks with Russia and gave early verbal concessions to Putin, spooking Europe.

An easy win, as far as the EU’s Eastern and Baltic states are concerned, is to liquidate the central bank reserves assets Russia left behind.

Poland prime minister Donald Tusk posted on X last week: “Enough talking, it’s time to act! Let’s finance our aid for Ukraine from the Russian frozen assets.”

In a televised address to the nation on Monday, Czechia Prime Minister Petr Fiala followed suit.

"For further military support of Ukraine, we must use money from frozen Russian assets from across the entire Europe," he said, adding that Trump had “decided to completely transform” U.S. foreign policy.

“The speed, thrust, and rhetoric are certainly surprising, but the shift of the United States away from focusing on Europe should not surprise us," said Fiala.

Estonia’s foreign minister, Margus Tsahkna, told Reuters: "The decision to use the windfall profits was a step in the right direction. I see that the time is ripe now to take the next step."

In February last year, former treasury secretary Janet Yellen marked herself out as an early advocate of liquidating the hundreds of billions of dollars in seized Russian assets.

“I believe there is a strong international law, economic, and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability,” Yellen said.

The latest calls have, however, highlighted a divide in the EU.

Germany, France, Italy, and the European Commission have resisted calls to unlock the funds for their own use. The opposition comes from a fear that the seizure of free market assets would alarm international investors and hurt Europe’s legitimacy in the long run.

Instead, these countries prefer to view the frozen reserves as a strong bargaining tool in negotiations with Russia, a point French president Emmanuel Macron repeated during a conversation with Trump this week.

Some in the Russian administration are reportedly ready to part ways with its reserves, provided the territories by the country stay after the war, with some even suggesting the reserves are used towards payment for this territory.

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Russia could concede $300 billion frozen assets as part of Ukraine war settlement

Russia could agree to using $300 billion of sovereign assets frozen in Europe for reconstruction in Ukraine but will insist that part of the money is spent on the one-fifth of the country that Moscow's forces control, three sources told Reuters.

Russia and the United States held their first face-to-face talks on ending the Ukraine war on Feb. 18 in Saudi Arabia and both U.S. President Donald Trump and Russian President Vladimir Putin have said they hope to meet soon.

After Putin sent troops into Ukraine in 2022, the United States and its allies prohibited transactions with Russia's central bank and finance ministry, blocking $300-$350 billion of sovereign Russian assets, mostly European, U.S. and British government bonds held in a European securities depository.

While discussions between Russia and the United States are at a very early stage, one idea being floated in Moscow is that Russia could propose using a large chunk of the frozen reserves for rebuilding Ukraine as part of a possible peace deal, according to three sources with knowledge of the matter.

Swathes of eastern Ukraine have been devastated by the war and hundreds of thousands of soldiers killed or injured on both sides while millions of Ukrainians have fled to European countries or Russia. A year ago, the World Bank estimated reconstruction and recovery would cost $486 billion.

The sources spoke to Reuters on condition of anonymity due to the sensitivity of the discussions and because discussions are only preliminary. The Kremlin declined to comment.

The idea that Russia may agree to using the frozen money to help rebuild Ukraine has not been previously reported, and may give an insight into what Russia is willing to compromise on as Moscow and Washington seek to end the war, at a time when Trump is pushing for U.S. access to Ukrainian minerals to repay Washington's support.

Russia's main demands to stop the fighting include a withdrawal of Kyiv's troops from Ukrainian territory Moscow claims and an end to Ukraine's ambitions to join NATO. Ukraine says Russia must withdraw from its territory, and wants security guarantees from the West. The Trump administration says Ukraine has unrealistic, "illusionary" goals.

Reuters could not establish whether the idea of using the frozen funds was discussed between Russia and U.S. counterparts in the Saudi meeting.

The Group of Seven stated in 2023 that the Russian sovereign funds will remain frozen until Russia pays for the damage it inflicted in Ukraine. Trump has said he would like Russia to return to the G7, a grouping of wealthy nations.

Russian Central Bank Governor Elvira Nabiullina said on Thursday the bank was not part of any talks on lifting sanctions or unfreezing of Russia's reserves.

Russia has previously said plans to use the funds in Ukraine amounted to robbery.

The Ukrainian foreign ministry and the White House did not immediately respond to requests for comment. The British Foreign Office declined to comment.

"Nothing about Ukraine and the EU can be decided without Ukraine and the EU," said Anitta Hipper, a spokesperson for the European Commission. She said the EU and member states were helping Ukraine strengthen its position ahead of any talks, including with a new round of sanctions on Russia.

Renaissance Capital lead analyst Oleg Kouzmin said the differences between the United States and Europe, which controls most of the assets, would complicate a lifting of the freeze.

"It would require the European side to fully back the current stance of the U.S. aimed at dialog with Russia," Kouzmin said, calling such a scenario "very optimistic".

TWO THIRD SPLIT?

Russia's frozen sovereign assets have been the subject of intense debate in the West with some proposing it be essentially given to Ukraine through a complex "repatriation loan".

One source with knowledge of the discussions in Moscow said that Russia could accept up to two-thirds of the reserves going to the restoration of Ukraine under a peace deal, provided there were accountability guarantees.

The rest could go to the Russian-controlled territories in eastern Ukraine that Russia now considers to be part of Russia, said the source.

Another source with knowledge of discussions said that Moscow would agree to using the money to rebuild Ukraine but that it was too early to say what the possible division might be. Two sources stressed that it was important to discuss which companies would get future contracts for reconstruction.

A different source, close to the Kremlin but not directly involved in the discussions, said that Russia would still demand the lifting of the freeze on the assets as part of gradual sanctions relief.

Several Western officials, especially in the German government and European Central Bank, have been reluctant to simply confiscate sovereign reserves, warning that such a move could face legal challenges and undermine the euro as a reserve currency.

Russian officials have repeatedly warned that the state confiscation of assets goes against free market principles, destroys banking security and erodes faith in reserve currencies. In retaliation, Russia has drafted legislation to confiscate funds from companies and investors from so-called unfriendly states, those that have hit it with sanctions. The bill has not yet been voted in Russia's State Duma lower house.

EUROPEAN FREEZE

At the time the assets were frozen, Russia's central bank said it held around $207 billion in euro assets, $67 billion in U.S. dollar assets and $37 billion in British pound assets.

It also had holdings comprising $36 billion of Japanese yen, $19 billion in Canadian dollars, $6 billion in Australian dollars and $1.8 billion in Singapore dollars. Its Swiss franc holdings were about $1 billion.

Russia reports its total gold and foreign exchange reserves as around $627 billion, including the frozen funds. The value of Russia's frozen assets fluctuates according to bond prices and currency movements.

The bank's biggest bond holdings were in the sovereign bonds of China, Germany, France, Britain, Austria and Canada. Russia's gold reserves were held in Russia.

Around 159 billion euros of the assets were managed by Belgian clearing house Euroclear Bank as of early last year, Euroclear has said.

While the freezing of the funds has angered Moscow, some of Russia's most outspoken war hawks have previously acknowledged Russia may eventually part with the frozen reserves, provided that the controlled territories stay within Russia.

"I propose a solution. They pay this money towards our purchase of those territories, those lands that want to be with us," said Margarita Simonyan, head of the Russian state broadcaster RT, in 2023.

The Russian-controlled territories of Ukraine account for about 1% of Russia's gross domestic product, but some economists believe that their share could grow quickly if they remain with Russia when the war ends. The regions already provide around 5% of Russia's grain harvest.

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