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6 May, 2024 22:35

Germany backs arming Ukraine with Russian funds

Chancellor Olaf Scholz supports the EU’s plan to spend 90% of interest from the frozen assets on weapons for Kiev
Germany backs arming Ukraine with Russian funds

Interest earned from Russian assets that are frozen by the EU should be spent on weapons for Ukraine, German Chancellor Olaf Scholz said on Monday.

The US and its allies seized around $300 billion in assets belonging to the Russian central bank in February 2022, when the Ukraine conflict escalated. The EU has stopped short of confiscating the money outright, proposing instead to direct the interest to Kiev.

“It is important that we also agree that this money can be used for arms purchases not only in the EU, but for purchases worldwide,” Scholz told reporters in Riga, after a meeting with the governments of Lithuania, Latvia, and Estonia.

He endorsed a proposal by EU foreign policy commissioner Josep Borrell about how the money should be allocated. According to Borrell, around 90% of the interest should be spent on weapons for Ukraine through the ‘European Peace Facility’ program, while the rest would be allocated to EU budgets to support Kiev’s own military industry.

Germany and the three Baltic states want to see weapons production in the EU ramped up, Scholz added. The bloc and the US alike have struggled to meet Ukraine’s demands for arms and ammunition.

The US and its allies have pledged over $200 billion in military and financial aid to Kiev over the past two years, insisting that the conflict must be a “strategic defeat” for Moscow, even as they denied being directly involved in the hostilities.

Kiev has called on the West to confiscate all frozen Russian assets in order to help fund the conflict. The US and Canada have been supportive, but the EU has remained skeptical.

About 70% of all frozen Russian funds are held by Euroclear, the Belgium-based EU central securities depository. These assets generated an estimated €4.4 billion ($4.7 billion) in interest income in 2023 alone. The after-tax revenue from the assets could reach as high as €20 billion by 2027, according to some estimates.

Moscow has denounced the freezing of the assets as “theft” and threatened a reciprocal response against the assets of EU-based individuals and companies within its jurisdiction. EU critics of the confiscation plan have also pointed out that it could destroy Euroclear’s reputation, damage the rule of law and property rights, and potentially even collapse the value of the euro.