In a significant move, EU diplomats have agreed to utilize income derived from frozen Russian state assets to provide financial support to Ukraine. The decision, made during a meeting on Wednesday, paves the way for Ukraine to receive approximately €3 billion for arms purchases and reconstruction before the summer.

Since the full-scale invasion in 2022, a staggering €210 billion in assets belonging to the Moscow central bank have remained frozen within the EU, predominantly at the Euroclear depositary in Belgium. In a tweet by Belgium, which currently chairs talks in the European Council, it was revealed that the deal had been agreed upon "in principle" during the regular meeting of national representatives.

Brussels has advocated for the use of interest generated from these frozen funds, estimated at around €3 billion per year, to cover Ukraine's reconstruction costs. Later, the plans were extended to include military expenditure in Kyiv. This proposal, which also enjoys support from the group of seven leading industrialized democracies, comes at a crucial time for Ukraine as it strives to turn the tide in its desperate military campaign. The country recently received a boost of €89 billion from the US Congress.

However, Ukrainian ministers argue that Brussels should go beyond mere interest payments and fully confiscate Moscow's assets to ensure that the aggressor bears the cost of the war. Concerns have been raised by officials from EU countries and the European Central Bank about the potential aftermath of seizing assets outright. They fear that it could set an unhelpful precedent or harm the euro's reputation as a safe currency.

The discussions were further complicated by issues regarding the administration fee to be retained by Euroclear, originally set at 13%, as well as Belgium's right to tax the profits acquired by the Brussels-based securities depository. Belgian Prime Minister Alexander De Croo has committed to directly sending approximately €1.5 billion to Ukraine, a result of applying existing corporate tax law to the unexpected windfall gained by Euroclear through frozen central bank assets.

The final agreement grants Euroclear the ability to retain a provisional buffer of 10% of the profits, in the event of litigation related to the funds. Additionally, 0.3% of the funds will be kept as an incentive, while the remaining 90% will be channeled through the European Peace Facility to aid Ukraine's purchase of weapons.

Commission President Ursula von der Leyen previously proposed that Ukraine could receive the initial funds under this mechanism by July. However, the calculation will be retroactively applied from February, when Euroclear officially segregated the assets.

In related developments, ambassadors have formally agreed on the reforms that Ukraine must implement in order to receive funds from a separate €50 billion facility of EU grants and loans.

While the decision to utilize frozen Russian assets is seen as a significant step towards aiding Ukraine, critics argue that more substantial measures should be taken to ensure that the aggressor incurs the full cost of the war.