In the wake of Russia's full-scale invasion of Ukraine, allies froze over $300 billion in assets, vowing to make Russia pay for the rebuilding efforts. Now, two years later, European Union (EU) leaders are discussing a proposal to utilize the profits generated by immobilized assets to provide financial assistance to Ukraine. The proposal, set to be discussed on Thursday, could potentially offer around $3 billion per year over several years, primarily for weapons, to help Ukraine stay in the fight.

While the EU's plan, if approved, would undoubtedly offer much-needed support to Ukraine, even its proponents acknowledge that $3 billion per year is not extraordinary, but not negligible either, according to top EU diplomat Josep Borrell. The proposal highlights the challenges and realities faced by Europe, as the bold declarations of stopping Russian President Vladimir Putin and standing with Ukraine are confronted by the grim consequences of war.

Recently, allies have been shaken by distressing reports from the front lines and concerning signals from the United States, where funding for Ukraine has stalled, and presidential candidate Donald Trump has once again criticized NATO. As EU leaders convened in Brussels on Thursday, there was a broad consensus that the region needs to do more to prevent Putin from claiming victory, but little confidence in Europe's ability to thwart his plans.

The decision to seize over $300 billion in Russian central bank assets held outside the country, including more than $200 billion in the EU, was made in 2022. However, there was initial disagreement among member states regarding the allocation of these assets. Some wanted all of it to be used to help Ukraine, while others raised concerns about the potential legal and long-term ramifications.

Seizing Russian assets could potentially affect sovereign wealth funds, investors, and central banks investing in European assets. The European Central Bank has warned about the potential negative impact on the euro, while fears of Moscow retaliating against European business interests in Russia also persist.

Discussions regarding the use of these frozen assets gained momentum as US aid for Ukraine stalled. Last month, US Treasury Secretary Janet L. Yellen expressed strong support for liquidating approximately $300 billion in frozen assets to support Ukraine's resistance and long-term reconstruction. Yellen emphasized the urgent need to unlock the value of these assets as a decisive response to Russia's destabilizing threat.

At present, the EU's plan focuses on tapping into windfall profits. With most of the frozen assets held by Belgium-based financial services company Euroclear, Belgian authorities have advocated for using some of the profits without touching the assets themselves. Under the plan, the majority of the profits generated by the frozen assets would be allotted to Ukraine, while a portion would be reserved as a buffer to fund legal battles as Russia attempts to recover the funds.

In terms of allocation, 90 percent of the funds this year would be dedicated to acquiring weapons, while the remaining 10 percent would boost Ukraine's weapons industry. Officials suggest that Ukraine could receive funds as early as summer. However, amidst a shortage of ammunition and weapons, it remains uncertain what exactly Kyiv will be able to acquire and when.

Estonian Prime Minister Kaja Kallas referred to the proposal as a "first step," implying that further action may be necessary. For Russia, however, the plan represents a step too far. Russia's Foreign Ministry spokesperson, Maria Zakharova, dubbed the proposal "outright banditry and theft," proclaiming it a gross violation of international norms. Zakharova emphasized that Russia would respond to these actions.

As discussions continue and the EU evaluates the feasibility of unlocking frozen assets to support Ukraine, the focus remains on Ukraine's ongoing fight against Russian aggression. The proposal signifies a collective effort by European allies to bolster Ukraine's resilience and deter further destabilization in the region.