EU to use revenues from frozen Russian assets to send weapons to Ukraine
But also — China, Greenwashing, Foreign Subsidies Regulation, North Macedonia
Hi! Today is Wednesday 15th May, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
After months of debate, the use of revenues from frozen Russian assets to support the Ukrainian war effort is within reach. On May 8, the Member States’ ambassadors cautiously reached a principle agreement on the matter. If approved by EU finance ministers, a first payment could be made to Kyiv as early as July.
CONTEXT • The majority of Russian assets frozen abroad since the start of the war in Ukraine are held in Belgium by the central securities depository Euroclear.
Debates on the use of these frozen assets have intensified in recent months. The US has repeatedly called for their total confiscation. While the idea may seem appealing, implementing it is proving to be quite complicated.
Germany, France, and Italy have strongly opposed this proposal. They fear the legal and financial insecurity that full confiscation could entail.
"We have no legal basis to seize Russian assets, and we should never act if we do not respect international law and the rule of law," Bruno Le Maire stated earlier this year. This approach could also lead to a loss of confidence in the European financial system, according to Christine Lagarde.
In February, Ursula von der Leyen publicly supported a more realistic alternative: using the revenue from these assets to send weapons to Ukraine.
This option involves extracting income from capital (interests) but not the capital itself. It is on this mechanism — which is less legally dubious — that the ambassadors of the 27 reached an agreement last Wednesday.
BELGIUM • Belgium’s attitude towards Russian assets also led EU Member States to intensify their work on the subject.
In recent weeks, several Member States have expressed frustration over the 25% tax levied by Belgian authorities on frozen Russian assets held in Brussels by Euroclear.
Several leaders believe there is a risk that Belgium uses this money to finance its own contributions to the aid sent to Ukraine (rather than a supplement), a claim denied by the Belgian government.
"It is a little unfair because nobody else has Russian money to pay for their aid for Ukraine", a European diplomat told The Guardian.
Since the start of the war, Belgium has reportedly collected 1.6 billion euros in taxes on profits from Euroclear's Russian frozen assets. These revenues could reach 1.7 billion euros in 2024.
Last week, Belgium finally responded to requests from the United States and other Member States. The Prime Minister stated that he is open to a "voluntary agreement" with the G7 and the rest of the EU on taxing profits related to frozen Russian assets from 2025 onwards.
THE PLAN • EU ambassadors also agreed to a plan to use revenue from frozen assets for military purposes in Ukraine, starting in February 2024. The compromise strikes the following balance:
90% of the interest will be used to finance the purchase of weapons for Ukraine, and the remaining 10% will be dedicated to the country's reconstruction. These 10% will reassure Austria, Malta, Cyprus, and Ireland, which are not part of NATO.
Euroclear will continue to collect a fee (0.3%) on frozen Russian assets to ensure their management. This amount is significantly lower than what was initially proposed, following pressure from France and Germany.
The European Central Bank (ECB) could be involved in managing an emergency fund in case of disputes with Russia.
According to the Commission, this plan should allow Ukraine to receive three billion euros annually. The mechanism will apply to interests collected by Euroclear from mid-February 2024 onwards.
REACTIONS • "There could be no stronger symbol and no greater use for that money," Ursula von der Leyen tweeted in reaction to the agreement reached by the ambassadors.
In the opinion of Estonian Prime Minister Kaja Kallas, the plan is: "A crucial decision by the EU (...) But we can't stop here. We must find a way to use Russia's frozen assets entirely.”
From Ukraine’s perspective, this amount may not be sufficient. Ukrainian Justice Minister Denys Maliuska commented: "We need hundreds of billions to win the war.”
NEXT STEPS • EU finance ministers will likely adopt the agreement on May 14.
A 14th package of sanctions against Russia is also being prepared. It could contain a ban on re-exporting Russian liquefied natural gas (LNG) without prohibiting its importation within the EU.
In Case You Missed It
CHINA • Chinese President Xi Jinping was on an official visit to Europe last week, for the first time since 2019. On May 6, the Chinese president met with President Macron and Commission President Ursula von der Leyen in Paris. No major breakthroughs were announced.
The European Commission has recently initiated numerous trade investigations targeting China, including in the photovoltaic panels, rail, and electric vehicles sectors. The issue of reciprocity in access to public procurement markets remains a pressing demand from Europeans. The EU's trade deficit with China was 291 billion euros in 2023.
The reception was warmer in Serbia (for the 25th anniversary of the bombing of the Chinese embassy by NATO forces) and in Hungary. These destination choices underscore divisions among Europeans regarding China.
Chinese investments in Hungary — particularly in the electric battery sector — have skyrocketed in recent years. Budapest has threatened to veto decisions against China several times in the Council.
Serbia and China signed a free trade agreement in October 2023, which will come into force in July 2024. While many important countries — like Italy — have withdrawn from the Belt and Road Initiative, Belgrade remains an unconditional supporter of Beijing.
GREENWASHING • Claims related to CO2 emissions offsetting through climate projects or the use of sustainable fuels made by 20 airlines are being targeted by the Commission.
Following an alert from The European Consumer Organisation (BEUC), the Commission has launched an investigation to determine whether these communications may constitute misleading actions or omissions, as defined by the Unfair Commercial Practices Directive.
This investigation is being conducted by the Commission and the Consumer Protection Cooperation (CPC) Network, which brings together consumer protection authorities within the EU. The 20 airlines have 30 days to respond to the Commission's concerns.
FSR • A new Chinese company withdrew from a tender process following the launch of an FSR (Foreign Subsidies Regulation) investigation. After Chinese rail company CRRC, which withdrew from a public tender in Bulgaria last month, LONGi Green Technology and Shanghai Electric Group Co announced their withdrawal from public tenders after the Commission launched in-depth investigations in early April under the FSR. The Commission has noted these withdrawals and closed the files.
NORTH MACEDONIA • On Wednesday, May 8, in North Macedonia, Gordana Siljanovska-Davkova became the country's first female president. This election marks the return of the nationalist right to power after 7 years of the Social Democrats in power.
North Macedonia is a candidate for EU membership. The country’s complicated relations with its neighbours — Greece and Bulgaria — represent a major obstacle to North Macedonia's candidacy.
Greece and North Macedonia reached an agreement in 2018 for North Macedonia to be constitutionally designated as North Macedonia — not Macedonia (a term also claimed by Greece).
This agreement allowed North Macedonia to join NATO in 2020 and start consultations for EU membership in 2022. North Macedonia has had candidate status for the EU since 2005.
Shortly after being elected, the new Macedonian president caused a stir by referring to Macedonia (without the "North") in her inauguration speech.
Bulgaria has been blocking North Macedonia's candidacy for several years, demanding that the country recognize the Bulgarian minority in Macedonia.
What We’ve Been Reading
The FT’s editorial board and columnist Martin Sandbu argue that Xi Jinping’s European tour to have been ‘unproductive’ and ‘a missed opportunity’.
The CEPR has published the second Paris Report – Europe’s Economic Security – which is edited by Jean Pisani-Ferry, Beatrice Weder Di Mauro, and Jeromin Zettelmeyer.
This edition was prepared by the What’s up EU team, including Maxence de La Rochère, Gianni Gaboret, Marwan Ben Moussa and Hana Rajabally. See you next week!