What is the best way to finance the reinforcement of Europe's defense, as well as that of Ukraine? The 27 European leaders that are scheduled to meet in Brussels on Thursday, March 21 will face this exact question. With Russia's success on the front in Ukraine; Kyiv's army suffering from a lack of ammunition and air defence systems; and $60 billion in US military aid still stalled by Congress in Washington, European countries must do more for Kyiv – but also for their own defense. They have therefore been exploring new funding options.

Over the past two years, the EU's 27 member states have already increased their military spending: Whereas before the war, in 2021, they were investing €214 billion in their armed forces, last year they invested €290 billion, according to provisional data from the European diplomatic service. In terms of GDP, this remains at a sustainable level, around 1.5%. Yet the goal is to reach 2%, or – according to many experts – even more, to ensure the continent's security. The Covid-19 crisis has left national budgets rather constrained, so European countries have been looking for alternative ideas, including the use of windfall profits linked to Russian assets that are frozen in Europe.

The European Union'shigh representative for foreign affairs and security policy, Josep Borrell, was scheduled to present his plan to confiscate the interest generated by Russian assets that are frozen in Europe on Wednesday, March 20. Ursula von der Leyen, EU Commission president, had opened up the possibility of such an option on February 24. Initially, the EU's member states had wanted to keep these funds aside for the future reconstruction of Ukraine. The majority now want to use them to arm Kyiv. As Borrell explained, by supplying more weapons, Europe could "avoid that anything is destroyed" before it needed reconstruction.

There are currently approximately €200 billion of Russian Central Bank assets frozen on European soil (out of a total of €269 billion frozen worldwide). The majority of these funds are held in Belgium, where they have been deposited with Euroclear. Approximately €4.4 billion in net interest was generated in 2023 from these frozen Russian funds, according to this international fund depository. Out of this sum, the country has already taxed €1.7 billion, which will be paid out to Kyiv, according to a decision by the Belgian government.

The remainder – around €2.7 billion – could therefore be confiscated and allocated to the European Peace Facility (EPF), the intergovernmental fund that has been funding arms transfers to Ukraine since March 2022. Borrell suggested that 90% of the interest generated by the Russian funds be transferred to the EPF to finance arms. He added that the remaining 10% could be channeled into the EU budget to modernize the Ukrainian defense industry. In early March, Brussels unveiled a vast support package for the European and Ukrainian defense industries.

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