How Europe may use Russian property to fund Ukraine’s reconstruction

European officials are exploring ways to use Russian assets to pay off Ukraine’s reconstruction.

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The European Union is getting closer to negotiating a detailed plan on how frozen Russian assets could be used to fund Ukraine’s reconstruction, a senior official told CNBC.

The EU has confirmed that there are more than 200 billion euros ($215.5 billion) and a separate 20 billion euros in assets across the Union owned by the Central Bank of Russia and Russian private individuals respectively. These assets were frozen by European authorities after the Russian invasion of Ukraine to punish the Kremlin for its aggression.

“We discussed it for quite a long time [how to use these assets to pay for the reconstruction of Ukraine]Swede Anders Ahnlid, who is leading the discussions between the 27 EU member states on the issue, told CNBC on Thursday.

“And I hope we’re now in a position to come up with ideas soon on how to at least use the proceeds from these immobilized assets,” Ahnlid said.

The subject is highly technical, legally complex and politically challenging.

The EU insisted that Russia must pay for the damage and suffering it is causing in Ukraine. European Commission President Ursula von der Leyen told CNBC in February that it was “unthinkable” that this would not be the case.

In her November speech, von der Leyen said the idea is to create a structure to manage the frozen funds, invest them, Then give the proceeds to Ukraine.

She added at the time that those funds would also be used for reconstruction once the war was over and sanctions on the frozen assets were lifted.

For now, officials are focusing on the first step – using proceeds from assets from the Central Bank of Russia – as they believe it would be the easiest way to avoid legal trouble. It is unclear how much money Ukraine will receive from this and how quickly Kiev would receive it.

“I think what’s important is that it gets confirmed there [are] More than 200 billion euros of these assets and then you have to know how much of that is in cash, how much is in other types of assets and then of course [how much] You can count on that,” said Ahnlid.

“If you have 100 billion [euros] And if you get a 3% return, you get the number that would make in terms of availability for rebuild per year,” he added.

When contacted by CNBC on Monday, the Ukrainian government could not immediately be reached for comment.

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Economists agree that there is a possibility that the EU could manage to legally use the proceeds from the assets of the Central Bank of Russia, but there are broader concerns about how much this will actually bring to Ukraine.

“However, that could work legally [it] “Won’t be a game-changer financially,” Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, said via email.

The World Bank, the European Commission, the United Nations and the Ukrainian government said in March that the total cost of Ukraine’s reconstruction had reached $441 billion.

But the war rages on, and the continued loss of life and infrastructure continues to add to the bill. An example is the recent destruction of the Nova Kakhovka Dam, which has led to further environmental, social and economic damage. The World Bank is still determining the total costs.

Local residents carry belongings from a boat during evacuation of a flooded area in Afanasiyivka, Mykolaiv region, after damage to the dam of the Kakhovka hydroelectric power station, June 10, 2023.

Oleksiy Filippov | Afp | Getty Images

“If measures of this kind should be taken, they should be done jointly with partners like the United States, the United Kingdom, Japan, Switzerland and other countries,” Ahnlid said of further using proceeds from frozen Russian assets to help Ukraine’s reconstruction .

The United States in May approved the transfer of confiscated assets of a sanctions-hit Russian oligarch to Ukraine. US Attorney General Merrick Garland said at the time it was the first transfer of forfeited Russian funds, but “it won’t be the last,” according to Reuters.

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