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EU officials vowed to press ahead with a plan to use frozen Russian assets for a €140bn loan for Kyiv despite proposals in a new US peace plan for Ukraine that could torpedo the whole scheme.
Brussels is hoping EU leaders will sign off on the so-called “reparations loan” next month, and the European Commission insisted on Friday that “ongoing intense work” on the plan to transform European support for Ukraine “will continue”.
But the plan has been thrown into question by President Donald Trump’s new peace push, which proposes the frozen assets should be poured into US-led investment funds in Ukraine and Russia worth hundreds of billions.
The proposal has drawn parallels with American attempts earlier this year to strong-arm Kyiv into agreeing to a minerals extraction deal with the US that Ukrainian and European officials deemed highly exploitative.
In this instance, the US would profit at the expense of Europe as well as Ukraine.
“It’s like a 1990s style mafia deal,” said Orysia Lutsevich, head of the Ukraine Forum at Chatham House.
The US peace proposal underscores the primacy of commercial gain in Trump’s foreign policy. The most detailed sections of the agreement are those referring to reconstruction and investment opportunities.
The new US peace proposal says: “$100bn in frozen Russian assets will be invested in US-led efforts to rebuild and invest in Ukraine. The US will receive 50 per cent of the profits from this venture.”
The prospect of diverting money intended for Ukraine to a US commercial project would be bad enough for European capitals. To make matters worse, the draft deal says Europe will “add” a further $100bn “to increase the amount of investment available for Ukraine’s reconstruction”.
The “remainder of the frozen Russian fund” will be invested in a separate US-Russian investment vehicle.
Two European officials said that the section of the peace agreement referring to frozen assets was one of the most alarming since it implies authority over assets that are mostly immobilised in European financial institutions.
One official said it was almost as if the text had been drawn up as “a deliberate provocation”.
About $300bn of Russian central bank reserves were frozen at the beginning of Russia’s full-scale invasion. But the US only controls about $5bn, with most of it sitting in the EU, smaller amounts in Japan, the UK, Switzerland and other jurisdictions.
Reaching $100bn for the US-Ukraine reconstruction fund would require support from the EU, which holds the majority of the funds, the two officials said.
Europeans would need to agree to forgo Russian cash sitting in their jurisdictions for US and Russia’s benefit — something EU officials and diplomats said was unimaginable.
But if Moscow were to argue that the EU’s reparations loan would blow up Trump’s peace plan, European capitals would probably come under intense US pressure to change course.
“The EU needs to use the Russian assets to help Ukraine fast,” said Hugo Dixon, a journalist and activist who has been campaigning in favour of the EU loan idea. “The longer it dithers, the greater the risk that Trump will bully it to unfreeze the assets and use them as part of his peace plan, which will undermine European security.”
European countries have spent months discussing the reparations loan to Ukraine. EU leaders failed to agree to the scheme at their summit in Copenhagen last month as Belgium, where most of the assets are held at central security depository Euroclear, demanded firmer guarantees against the risk of Russian retaliation.
Since then, EU countries have been exploring alternative funding options, including grants and jointly backed debt.
However, the reparations loan idea using Russian assets remains the favoured option by a majority of EU countries, as it would be the least costly way to fund Ukraine for the coming two years.
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