Christine Lagarde has said the European Union’s latest proposal to channel revenue from frozen Russian assets to Ukraine is the most convincing attempt so far to stay within the limits of international law, as EU leaders prepare for a decisive discussion on the plan at their next summit.
For more than two years, the EU and its G7 partners have immobilised around €210 billion in Russian central bank reserves as part of a wider sanctions regime imposed after Russia’s full-scale invasion of Ukraine in February 2022. Most of these sovereign assets are held at Euroclear in Belgium, which has become central both to the financial engineering and to the legal risk.
International law and long-standing practice protect sovereign assets from outright confiscation, even in cases of aggression. EU institutions have therefore focused on ways to use the proceeds generated by the frozen reserves, rather than seizing the underlying principal. In May 2024, member states agreed in principle that the “extraordinary revenues” from those assets could be set aside to support Ukraine’s self-defence and reconstruction.
The latest scheme, developed by the European Commission and now heading to EU leaders, goes further. It would use the income and expected future income from the immobilised reserves to back a large, long-term “reparations loan” for Ukraine. Under a blueprint presented by Commission President Ursula von der Leyen, about €90 billion would be provided to Kyiv over the next two years, with an additional €45 billion reserved to support a broader G7 credit line.
Speaking at a Financial Times event, Lagarde described this design as “the closest I have seen to something that is in compliance with the international law principles”. She stressed that, in her view, the proposal respects key legal constraints because it does not strip Russia of ownership of its reserves. “It’s a very, very exceptional case, and it does not remove the title of Russia to the assets,” she said.
Lagarde holds no formal role in the negotiations between EU governments and the Commission. However, as president of the European Central Bank, she has repeatedly warned that any move perceived as arbitrary confiscation of sovereign assets could damage the euro’s standing as a reserve currency and prompt other states to diversify away from euro-denominated holdings. ECB officials have argued that the legal robustness of any scheme is therefore not only a matter of principle but also of financial stability.
Belgium remains one of the main sources of hesitation. The bulk of the Russian central bank reserves in Europe are held at Brussels-based Euroclear, which has already booked several billion euros in profit on the frozen portfolio since 2022. The Belgian government fears that any attempt to leverage these assets could trigger legal challenges or arbitration claims, leaving Belgium – and Euroclear – exposed to compensation demands if courts later ruled against the EU-level framework.
Legal experts broadly agree that Russia bears responsibility under international law to make reparations for the damage caused by its invasion. The difficulty lies in creating a mechanism that can tap frozen assets or their proceeds as security for such reparations without breaching rules on sovereign immunity and protection of property. Several academic and policy studies in recent months have concluded that using income from the assets as backing for a loan, rather than confiscating the principal, is more defensible in law, provided the scheme is tightly framed and clearly justified as a response to a serious breach of peace.
Lagarde urged EU authorities to explain the proposal carefully to international partners and market participants. She said it was important to show that the EU was not creating a general precedent of seizing sovereign funds “simply because it suited its interest”, but responding to what she called a highly specific and exceptional situation. That communication effort is seen in Brussels as essential to maintaining confidence among other reserve-holding states, including in the Gulf and Asia.
For Ukraine, the outcome of the debate is significant. Kyiv faces persistent budget and reconstruction needs running into hundreds of billions of euros, while the political appetite for repeated ad-hoc financial packages in Western capitals has become harder to sustain. A large, multi-year loan backed by Russian assets’ profits is viewed by many EU officials as a way of providing predictable support while making clear that Moscow, rather than European taxpayers, should ultimately bear the cost of the war.
Some member states, however, remain cautious about the scale and complexity of the scheme, as well as about possible Russian retaliation or counter-measures. Previous European Council meetings have failed to produce full agreement on using frozen reserves as collateral, and Belgium has insisted on additional guarantees that the burden of any successful legal challenges will be shared across the EU, not concentrated on the country where most of the assets are located.
EU leaders are expected to review the Commission’s legal texts and the latest compromise formula at their upcoming summit. Lagarde’s assessment that the proposal now comes close to the international law benchmark may strengthen the hand of those pushing for a deal, even if the final decision rests with governments. For now, the central bank’s message is that support for Ukraine must be sustained, but not at the expense of the legal framework and financial credibility on which the euro area depends.
