Tempo di lettura ca.: 8 minuti, 41 secondi
Written by Bruno Bilquin.
Two and a half years after Russia began its full-scale invasion of Ukraine, EU military aid under the European Peace Facility (EPF) is still falling behind, with fresh money needed despite the increased EPF budget reserved for Ukraine. The new plan set in place by the EU and its G7 partners to use windfall profits from frozen Russian assets only began to provide military and reconstruction support for Ukraine with the first payment on 26 July 2024. The EU will use the EPF to channel its military aid under this recent EU-G7 plan, amid persisting legal and (geo)political uncertainties.
New EPF financial ceiling and creation of the Ukraine Assistance Fund
On 18 March 2024, the Council increased the EPF’s financial ceiling by €5 billion in current prices and secured this top-up for military support to Ukraine, by establishing a dedicated Ukraine Assistance Fund (UAF) within the EPF, under Decision (CFSP) 2024/890, amending Council Decision (2021/509) establishing the EPF. The UAF focuses on increased joint procurement from the European defence industry, including Norway. Exceptionally, military products from elsewhere will be permitted, as sourcing kit without US components for instance can be problematic. Reimbursement of Member State donations will be limited after a transition period. The EPF’s global ceiling now totals over €17 billion in current prices for 2021‑2027, including €11.647 billion approved for Ukraine. Of this, €6.147 billion was mobilised so far (€3.770 billion for the first seven regular assistance measures of at least €0.5 billion each, plus €0.377 billion for the common costs of the EU military mission for Ukraine, plus €2 billion for the Ukraine ammunition plan). Some €5.5 billion remains blocked (around €0.5 billion for the eighth regular assistance measure, plus €5 billion for the UAF).
New plan to integrate windfall profits from frozen Russian assets into the EPF
On 12 February 2024, the Council adopted two regulations (EU 2024/576 and EU 2024/577) concerning restrictive measures (sanctions) in view of Russia’s actions destabilising the situation in Ukraine, and amending former regulations. Regulation 2024/576 clarifies central securities depositories’ obligations when holding Central Bank of Russia assets and reserves with a total value exceeding €1 million, which are frozen due to EU sanctions. Central securities depositories must apply specific rules: set aside extraordinary cash balances accumulating due to EU sanctions alone; they cannot dispose of any ensuing net profits; and must report such profits to the European Commission. Only Euroclear Belgium falls within the scope of the regulation, while Luxembourg hosts the remainder of the Russian financial assets frozen in the EU.
On 21 May 2024, the Council gave the go-ahead for use of extraordinary revenues from frozen Russian assets to support Ukraine’s self-defence through the EPF (90 % of these profits), and for Ukraine’s reconstruction through the EU budget (10 %). The Council press release also notes the adoption of the corresponding ‘set of legal acts’ on the same day.
According to HR/VP Josep Borrell, the 24 June 2024 Foreign Affairs Council agreed on a legal framework for allocating ‘windfall profits’ from immobilised Russian assets to the EPF. However, one country continued ‘blocking the use of about €6 billion’ from the EPF (i.e. €5 billion from the UAF, plus about €1 billion to be reimbursed to Member States for their military assistance to Ukraine, including €500 million to Poland), by vetoing the set of seven legal acts intended to unblock the EPF. However, the HR/VP noted, as that country ‘did not participate in the [21 May] decision to use [the profits of] these assets, it has not the right to participate in deciding to which purpose they are allocated’. The HR/VP added these profits would be allocated to air defence, ammunition and supporting Ukraine’s [defence] industry; €1.4 billion would be available in July 2024, and another €1 billion by the end of 2024. The HR/VP added the issue would be dealt with speedily and discussed at the 27‑28 June 2024 European Council. Arguably, as these profits are primarily sourced from Russian assets, and do not originate from the EU budget or Member States (as the EPF does), a Member State cannot oppose their use to support Ukraine if a qualified majority (required by Article 215 TFEU for the EU sanctions regime) of Member States so decides.
In its 27 June 2024 conclusions, the European Council declared it: ‘looks forward to the first disbursement this summer; invites the Commission, the HR/VP and the Council to take work forward, while addressing all relevant legal and financial aspects, in order to provide additional funding for Ukraine by the end of the year in the form of loans serviced and repaid by future flows of the extraordinary revenues with a view to reaching approximately €50 billion together with G7 partners as discussed at the Apulia Summit, to support Ukraine’s current and future military, budget and reconstruction needs. (…) Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war’. At the Apulia Summit in Italy on 14 June 2024, the G7 decided ‘to make available approximately US$50 billion leveraging the extraordinary revenues of the immobilised Russian sovereign assets (…) stepping up [its] collective efforts to disarm and defund Russia’s military industrial complex’. This new plan seeks to provide Ukraine with a US$50 billion syndicated loan, repaid using revenue from frozen Russian assets, a loan the US would issue with Ukraine and G7 members by end-2024. This further illustrates the close EU/G7cooperation on sanctions implementation.
On 22 July 2024, the conclusions of the Foreign Affairs Council insist that EU support under the EPF is unblocked and explain the HR/VP’s update on progress towards the first transfer of €1.4 billion of windfall profits from frozen Russian assets, expected at the beginning of August 2024.
Having requested Euroclear make the required financial contribution, the Commission received the first transfer (‘instalment’) of €1.5 billion of revenue from immobilised Russian assets for Ukraine on 23 July 2024. In its Questions & Answers document of 26 July, the Commission confirmed the 90 %/10 % split in the financial contribution to the EPF for military assistance and the Ukraine Facility. This €50 billion instrument funded through the EU budget (€17 billion in grants and €33 billion in loans), was established by Regulation (EU)2024/792 of the European Parliament and the Council of 29 February 2024, to support Ukraine’s reconstruction. The Commission noted the next call to Euroclear should take place in March 2025. The Commission announced that the EU made the first payment of €1.5 billion to Ukraine on 26 July 2024, channelling the funding to Ukraine through the EPF and the Ukraine Facility.
The CEO of Euroclear Belgium is opposed to seizure of frozen Russian assets (the capital), as initially requested by the US. It is feared that major investors would shun Europe as a result, fearing their assets could be ‘confiscated’, with considerable impact not only on Euroclear, but due to its systemic importance and size, on the global financial markets. Analysts from think tanks such as Chatham House or Bruegel also warn against the legal uncertainty and/or the risk of far-reaching financial market costs of asset confiscation. Chatham House analyst Creon Butler advises maintaining the status quo, ‘including the threat of confiscation as a last resort, reserving the treatment of frozen assets for maximum effect in support of Ukraine when negotiations to end the war eventually begin’. The European Central Bank is against asset confiscation on rule-of-law grounds.
In his press remarks after the 22 July 2024 Foreign Affairs Council, the HR/VP stated that most Member States insist on unblocking the payment due under the EPF for military support for Ukraine. This was in reference to the Member State blocking the use of the EPF for Ukraine, the EPF-lodged €5 billion UAF, and the eighth regular tranche of €500 million (the seventh dating from February 2023).
In its resolution of 17 July 2024 on the need for continuous EU support for Ukraine, the European Parliament regretted Hungary’s abuses of its veto power in the Council ‘to prevent essential aid from being granted to Ukraine’ and urged Hungary to lift its blockade of the EPF for Ukraine, ‘including the agreed reimbursement’ to Member States for the military aid they have delivered. It also condemned Hungarian Prime Minister Viktor Orbán’s July 2024 visit to the Russian Federation, deeming it ‘a blatant violation of the EU’s Treaties, including the principle of sincere cooperation’, a violation that ‘should be met with repercussions for Hungary’.
Read this ‘at a glance’ note on ‘Ukraine, the European Peace Facility and additional financing‘ in the Think Tank pages of the European Parliament.
[[{“value”:”
Written by Bruno Bilquin.
Two and a half years after Russia began its full-scale invasion of Ukraine, EU military aid under the European Peace Facility (EPF) is still falling behind, with fresh money needed despite the increased EPF budget reserved for Ukraine. The new plan set in place by the EU and its G7 partners to use windfall profits from frozen Russian assets only began to provide military and reconstruction support for Ukraine with the first payment on 26 July 2024. The EU will use the EPF to channel its military aid under this recent EU-G7 plan, amid persisting legal and (geo)political uncertainties.
New EPF financial ceiling and creation of the Ukraine Assistance Fund
On 18 March 2024, the Council increased the EPF’s financial ceiling by €5 billion in current prices and secured this top-up for military support to Ukraine, by establishing a dedicated Ukraine Assistance Fund (UAF) within the EPF, under Decision (CFSP) 2024/890, amending Council Decision (2021/509) establishing the EPF. The UAF focuses on increased joint procurement from the European defence industry, including Norway. Exceptionally, military products from elsewhere will be permitted, as sourcing kit without US components for instance can be problematic. Reimbursement of Member State donations will be limited after a transition period. The EPF’s global ceiling now totals over €17 billion in current prices for 2021‑2027, including €11.647 billion approved for Ukraine. Of this, €6.147 billion was mobilised so far (€3.770 billion for the first seven regular assistance measures of at least €0.5 billion each, plus €0.377 billion for the common costs of the EU military mission for Ukraine, plus €2 billion for the Ukraine ammunition plan). Some €5.5 billion remains blocked (around €0.5 billion for the eighth regular assistance measure, plus €5 billion for the UAF).
New plan to integrate windfall profits from frozen Russian assets into the EPF
On 12 February 2024, the Council adopted two regulations (EU 2024/576 and EU 2024/577) concerning restrictive measures (sanctions) in view of Russia’s actions destabilising the situation in Ukraine, and amending former regulations. Regulation 2024/576 clarifies central securities depositories’ obligations when holding Central Bank of Russia assets and reserves with a total value exceeding €1 million, which are frozen due to EU sanctions. Central securities depositories must apply specific rules: set aside extraordinary cash balances accumulating due to EU sanctions alone; they cannot dispose of any ensuing net profits; and must report such profits to the European Commission. Only Euroclear Belgium falls within the scope of the regulation, while Luxembourg hosts the remainder of the Russian financial assets frozen in the EU.
On 21 May 2024, the Council gave the go-ahead for use of extraordinary revenues from frozen Russian assets to support Ukraine’s self-defence through the EPF (90 % of these profits), and for Ukraine’s reconstruction through the EU budget (10 %). The Council press release also notes the adoption of the corresponding ‘set of legal acts’ on the same day.
According to HR/VP Josep Borrell, the 24 June 2024 Foreign Affairs Council agreed on a legal framework for allocating ‘windfall profits’ from immobilised Russian assets to the EPF. However, one country continued ‘blocking the use of about €6 billion’ from the EPF (i.e. €5 billion from the UAF, plus about €1 billion to be reimbursed to Member States for their military assistance to Ukraine, including €500 million to Poland), by vetoing the set of seven legal acts intended to unblock the EPF. However, the HR/VP noted, as that country ‘did not participate in the [21 May] decision to use [the profits of] these assets, it has not the right to participate in deciding to which purpose they are allocated’. The HR/VP added these profits would be allocated to air defence, ammunition and supporting Ukraine’s [defence] industry; €1.4 billion would be available in July 2024, and another €1 billion by the end of 2024. The HR/VP added the issue would be dealt with speedily and discussed at the 27‑28 June 2024 European Council. Arguably, as these profits are primarily sourced from Russian assets, and do not originate from the EU budget or Member States (as the EPF does), a Member State cannot oppose their use to support Ukraine if a qualified majority (required by Article 215 TFEU for the EU sanctions regime) of Member States so decides.
In its 27 June 2024 conclusions, the European Council declared it: ‘looks forward to the first disbursement this summer; invites the Commission, the HR/VP and the Council to take work forward, while addressing all relevant legal and financial aspects, in order to provide additional funding for Ukraine by the end of the year in the form of loans serviced and repaid by future flows of the extraordinary revenues with a view to reaching approximately €50 billion together with G7 partners as discussed at the Apulia Summit, to support Ukraine’s current and future military, budget and reconstruction needs. (…) Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war’. At the Apulia Summit in Italy on 14 June 2024, the G7 decided ‘to make available approximately US$50 billion leveraging the extraordinary revenues of the immobilised Russian sovereign assets (…) stepping up [its] collective efforts to disarm and defund Russia’s military industrial complex’. This new plan seeks to provide Ukraine with a US$50 billion syndicated loan, repaid using revenue from frozen Russian assets, a loan the US would issue with Ukraine and G7 members by end-2024. This further illustrates the close EU/G7cooperation on sanctions implementation.
On 22 July 2024, the conclusions of the Foreign Affairs Council insist that EU support under the EPF is unblocked and explain the HR/VP’s update on progress towards the first transfer of €1.4 billion of windfall profits from frozen Russian assets, expected at the beginning of August 2024.
Having requested Euroclear make the required financial contribution, the Commission received the first transfer (‘instalment’) of €1.5 billion of revenue from immobilised Russian assets for Ukraine on 23 July 2024. In its Questions & Answers document of 26 July, the Commission confirmed the 90 %/10 % split in the financial contribution to the EPF for military assistance and the Ukraine Facility. This €50 billion instrument funded through the EU budget (€17 billion in grants and €33 billion in loans), was established by Regulation (EU)2024/792 of the European Parliament and the Council of 29 February 2024, to support Ukraine’s reconstruction. The Commission noted the next call to Euroclear should take place in March 2025. The Commission announced that the EU made the first payment of €1.5 billion to Ukraine on 26 July 2024, channelling the funding to Ukraine through the EPF and the Ukraine Facility.
The CEO of Euroclear Belgium is opposed to seizure of frozen Russian assets (the capital), as initially requested by the US. It is feared that major investors would shun Europe as a result, fearing their assets could be ‘confiscated’, with considerable impact not only on Euroclear, but due to its systemic importance and size, on the global financial markets. Analysts from think tanks such as Chatham House or Bruegel also warn against the legal uncertainty and/or the risk of far-reaching financial market costs of asset confiscation. Chatham House analyst Creon Butler advises maintaining the status quo, ‘including the threat of confiscation as a last resort, reserving the treatment of frozen assets for maximum effect in support of Ukraine when negotiations to end the war eventually begin’. The European Central Bank is against asset confiscation on rule-of-law grounds.
In his press remarks after the 22 July 2024 Foreign Affairs Council, the HR/VP stated that most Member States insist on unblocking the payment due under the EPF for military support for Ukraine. This was in reference to the Member State blocking the use of the EPF for Ukraine, the EPF-lodged €5 billion UAF, and the eighth regular tranche of €500 million (the seventh dating from February 2023).
In its resolution of 17 July 2024 on the need for continuous EU support for Ukraine, the European Parliament regretted Hungary’s abuses of its veto power in the Council ‘to prevent essential aid from being granted to Ukraine’ and urged Hungary to lift its blockade of the EPF for Ukraine, ‘including the agreed reimbursement’ to Member States for the military aid they have delivered. It also condemned Hungarian Prime Minister Viktor Orbán’s July 2024 visit to the Russian Federation, deeming it ‘a blatant violation of the EU’s Treaties, including the principle of sincere cooperation’, a violation that ‘should be met with repercussions for Hungary’.
Read this ‘at a glance’ note on ‘Ukraine, the European Peace Facility and additional financing‘ in the Think Tank pages of the European Parliament.
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