Tensions and uncertainty are high as the EU top leaders meet at the European Council (EUCO) summit in Brussels to try and push through a decision on seizing Russia’s billions in frozen assets to back a €210bn Reparation Loan.

Divisions in the already fractured EU have been widened as the European Commission (EC), led by European Commission President Ursula von der Leyen and EU foreign policy chief Kaja Kallas attempt to force a YES vote through that creates a complicated scheme to free up around €200bn in cash held in Belgium’s Euroclear depository.

Seven countries, including Italy and Belgium, have already come out against the scheme, but at least eight Nordic countries, plus France and Germany, are certain to back the Reparation Loan vote. To pass a qualified majority vote (QMV), the YES camp needs at least 15 of the 27 member states to approve it that collectively represent more than 65% of the EU's population. That means Spain’s vote, as a large country, will be especially important.

Accusations and recriminations

Tensions are very high and accusations and recriminations have been flying in the run up to the vote.

Belgium has been in the firing line as its approval is needed for the scheme to work. European Commission (EC) pressure on Belgium’s Prime Minister Bart De Wever has been extreme, who's refusing to release the money unless all the other EU states agree to share the risk of having to return the money to Russia with Brussels – something the other member states have refused to do. German Chancellor Friedrich Merz flew to Brussels last week to pressure Wever into agreeing, and a meeting between Belgium officials and EU foreign policy chief Kaja Kallas, a leading Russian hawk, ended with raised voices last week, according to reports.

The outcome of the vote remains up in the air with Merz saying there was a “50/50” chance of the motion being passed on December 17.

“Putin is banking on our failure to act,” Kallas told journalists just before the EUCO session began. “We cannot afford to do him that favour. The Reparations Loan is the most clear-cut option for sustained funding for Ukraine.”

The EC executive has warned that it will keep the delegates at the summit until a decision on the Reparation Loan is reached.

The vote is existential for Ukraine as without the loan it faces a macroeconomic collapse in the new year. EU foreign policy chief Kaja Kallas said Europe “has no plan B” if the loan is not approved the day before the vote.

“Tomorrow, European leaders are meeting in Brussels. It will be a very important meeting. The outcome of this meeting – the result Europe produces – must make Russia feel that its desire to continue the war next year is pointless, because Ukraine will have support. This rests entirely with Europe; Europe must make this choice,” Ukrainian President Volodymyr Zelenskiy said in his daily video post the day before the vote.

Hungarian Prime Minister Viktor Orban, a leading NO proponent, and his Foreign Minister Peter Szijjarto clashed publicly with Polish Foreign Minister Radoslaw Sikorski, an ardent Ukraine supporter, on December 14 after the EC invoked the emergency powers of Article 122 of the EU’s founding treaty to nix Budapest’s ability to veto the renewal of sanctions on the CBR money.

Russian Foreign Ministry Spokeswoman Maria Zakharova called European authorities "thimbleriggers" (the Russian equivalent of the shell game con) following the decision to freeze Russian assets for an indefinite term.

"Bypassing Hungary and raping European law in broad daylight, the Brusselians are making moves to seize frozen Russian assets – a declaration of war. Meanwhile, they demand €135 billion more from member states to fuel the conflict. Hungary will not play along in this twisted Brusselian scheme,” Orban wrote on social media.

"Viktor has earned his Order of Lenin," Sikorski shot back.

Szijjarto chipped in to the spat tweeting: "We understand you really want a Russia vs. Europe war! We will not let ourselves be dragged into your war!!"

A new addition to the NO camp has been the newly elected Prime Minister of Czechia Andrej Babis, who has aligned with Orban and the right-wing and pro-Russia Patriots of Europe, which is now the third biggest block in the EU. Babis also refused to provide guarantees for EU loans to Ukraine using frozen Russian assets.

"We will not take on any guarantees and will not invest any money. We have no money for other countries," he said on social media last week, demanding the European Commission find alternatives. Babis remarks represent a sharp volte-face for Czechia, which was strongly pro-Ukraine under the former premier Petr Fiala.

The White House also has a vested interest in seeing the Reparation Loan vote fail as part of the US 28-point peace plan (28PPP) includes using the $300bn of frozen assets to seed a $100bn US-Ukraine reconstruction fund and another $200bn US-Russia investment fund for joint commercial projects.

Critics of the EU plan argue that the Trump peace plan is making real progress following the Berlin meeting on December 14-15 and he is pushing hard to end the war before Christmas. However, Merz has openly declared the Reparation Loan is purely designed to continue the war for another two years, which he illogically reasoned is the fastest way of bringing the war to an end.

“We intend to use Russian assets to finance the Armed Forces of Ukraine for at least two more years. This step is not about prolonging the war, but about bringing the war to an end as soon as possible,” he said in a social media post on December 17.

Russia to retaliate

Russia’s central bank has fired the first salvo in the coming legal battle by filing a RUB18 trillion ($229bn) legal claim in the Moscow Arbitration court against Euroclear, the Brussels-based securities depository holding €185bn of Russia’s frozen assets. The first hearing is expected in mid-January.

While the Moscow-based court has no jurisdiction in Europe, experts say the case starts a paper trail that is relevant if the dispute goes in front of an international arbitration court.

Ukraine won a $2bn award, and was paid $2bn, in a successful lawsuit in 2017 in the Hague Arbitration court against Gazprom for the appropriation of Ukrainian gas assets during the annexation of the Crimea. Ukraine also won another $5bn award in a case in the Stockholm Arbitration court in 2023 and is currently trying to seize Russian overseas assets to collect.

However, there is a great deal of uncertainty over the prospects of success of any legal action Russia may bring. Ratings agency Fitch downgraded the EU’s credit rating outlook to negative on December 17, warning that if the EU plan to seize Russia's frozen assets goes ahead it would expose Euroclear to significant legal and financial risk.

Against that Kyiv School of Economics (KSE) released a legal assessment of the risk on December 18 that downplayed the risks, arguing that Russia has few courts to turn to and its case is weak and would likely be rejected.

The legal cases may remain in doubt, but there is no doubt that the Kremlin will seize tens of billions of foreign-owned cash and assets trapped in Russia. In retaliation for Western sanctions, the Kremlin has already seized or frozen the assets of at least 32 Western companies, causing estimated losses of $57bn, according to the Kyiv School of Economics (KSE).

Western firms had $127bn in assets in Russia as of 2024, according to KSE, although the Kremlin puts the figure much higher at $288bn. The Russian figure includes a broader set of assets, likely counting indirect holdings, joint ventures, minority stakes, and potentially inflating asset values based on pre-war book values or replacement cost.

Under a September 2024 decree, Russia now has the legal framework to expedite nationalisation of Western-owned subsidiaries in response to EU asset seizures, which unlike the frozen CBR money are largely privately-owned.

Euroclear is seen as a likely target for retaliation and expects €17bn of its clients’ assets to remain immobilised inside Russia, Belgian officials say. Russia was hooked into the international capital markets in 2012, including being connected to Euroclear, which means the European depository has a significant amount of money that is now trapped inside the Russian settlement system by the SWIFT sanctions.

Despite nearly 1,900 foreign firms reducing or exiting their Russian operations since 2022, 2,315 foreign companies remain active, including banks such as Austria’s Raiffeisen and Italy’s UniCredit, which remain extremely profitable and have been reluctant to leave.

These firms earned $19.5bn in profits in Russia last year but are unable to repatriate funds due to dividend restrictions. UniCredit has about €3.5bn trapped in Russia; Raiffeisen earned $2.9bn there in 2024.

As bne IntelliNews reported, only 9% of foreign companies have withdrawn completely. In 2024 these companies paid just under $4bn in corporate profit taxes to the Russian budget, according to bne IntelliNews calculations, a significant contribution to Putin’s war machine. They are expected to pay a similar sum in 2025. That number excludes payroll, social, VAT and import duty taxes, which are also significant. Foreign-owned companies employed around 693,000 people in Russia as of mid-2023, according to KSE.

Russia has allowed limited Western withdrawals, but type-C accounts — where foreign profits are held — have grown. The dividend payments to foreign shareholders from unfriendly countries in leading Russian companies are paid into type-C accounts where they technically still belong to the foreign investors, but are inaccessible. In March 2023, Russia said they held RUB500bn ($6.3bn); the amount is now likely much higher.

The Russian companies have continued to meet their legal obligation to pay dividends to their foreign investors since the war started in 2022. Russian retail banking giant Sberbank paid 25% of its RUB787bn ($8.7bn) dividend into type-C accounts. BP’s dividends from state-owned oil major Rosneft are estimated at RUB340bn ($4bn), and JPMorgan holds around RUB243bn ($2.7bn), most of which is held in type-C accounts.

If the EU moves to confiscate Russia’s reserves, Moscow could respond by seizing all this type-C account funds and transferring it to the federal budget giving the state a substantial boost at a time when the budget deficit is swelling at an alarming rate.

In addition to the state sponsored law suits, at least 24 Russian oligarchs and corporations have already launched legal challenges to asset freezes under international investment treaties signed with the Soviet Union, seeking over $62bn in claims. These cases aim not necessarily to win but to increase legal risks and prolong proceedings. Mikhail Fridman alone is pursuing $16bn in damages from Luxembourg in a case that could open a Pandora’s box if he wins, say legal experts.