The European Union Council has approved the use of interest income from frozen Russian assets for the benefit of Ukraine on Tuesday. An agreement had been reached between the permanent representatives of member states, also known as EU ambassadors, prior to this approval.
Securities centers holding more than one million euros worth of Russian state assets will now pay windfall interest income on these assets to the EU twice a year, starting after February 15 of this year. The funds collected will be used for military support to Ukraine through the European Peace Fund and rebuilding Ukraine’s defense industry capacity through EU programs. The funds will be divided, with 90 percent going to the peace fund and 10 percent to the EU budget. The EU Commission estimates an annual income of 4.5 billion euros, with Belgium expected to tax around 1.5 billion of that revenue.
Belgium has the right to tax interest income as most of the frozen funds are held in its securities center, Euroclear. However, concerns have been raised about its legality and potential impact on the euro’s status as a reserve currency. Despite these concerns, Ukraine, the United States, and Canada support using frozen assets to support Ukraine.
The G7 meeting in June raised questions about how to allocate these assets and what their implications could be for ongoing conflict in Ukraine. EU leaders will convene at the end of July to further discuss this issue at a summit that will address both interest income and potential use of frozen funds themselves.
