BRUSSELS — Hungarian Prime Minister Viktor Orbán is standing in the way of the EU’s plan to seize €140 billion of sanctioned Russian assets and lend them to Ukraine. But the European Commission thinks it’s found a legal workaround to cut Hungary out of the decision-making process.
Ordinarily, a measure as dramatic as Brussels’ plan to seize Moscow’s reserves would require unanimity among the 27 member countries — effectively granting a veto to Orbán, the EU leader closest to Russian President Vladimir Putin.
Given Orbán’s long track record of seeking to obstruct sanctions against the Kremlin, EU legal experts are working on a scheme to ensure that the decision on the proposed “Reparation Loan” to Ukraine can be taken by a qualified majority instead.
Four people briefed on the plans told POLITICO the Commission is hoping to base its action on a set of European Council conclusions that all EU leaders, including Orbán, agreed to on Dec. 19 last year.
In that statement, the leaders declared: “Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war.” At the time, that statement had largely been understood to mean the assets themselves should remain frozen, mainly at Euroclear bank in Belgium, and not accessed by Russia, while interest could be used for the war effort.
The Commission’s new argument is that this statement provides sufficient cover to change the sanctions rules from unanimity to a qualified majority. For that to work, all or most of the other countries would have to agree.
“This would require a high-level political agreement by all or most Heads of State or Government,” the Commission said in a note to EU ambassadors meeting on Friday.
Not just Hungary
Winning that broader agreement will not be easy. There are other Russia-friendly nations in the potential mix, such as Slovakia.
Then there’s the Belgium problem. The Belgian government has already pushed back amid concerns that the EU’s cash grab could expose Belgium and Euroclear, a financial institution that houses Russia’s frozen state assets, to legal retaliation from Moscow.
“Taking Putin’s money and leaving the risks with us. That’s not going to happen, let me be very clear about that,” said Prime Minister Bart De Wever in New York on the margins of the U.N. General Assembly. “If countries see that central bank money can disappear if European politicians see fit, they might decide to withdraw their reserves from the eurozone.”
Still De Wever conceded he was willing to discuss the matter, and Belgium is broadly supportive of measures against Putin, unlike Hungary and Slovakia.
The key offer of reassurance to the Belgians is likely to come in the form of other EU countries stepping in to replace the Euroclear assets sent to Kyiv with jointly underwritten IOUs.
EU leaders are meeting next week in Copenhagen, where discussions around the loan are planned. No formal decisions will be made — that is set for the summit at the end of October, after finance ministers have had a chance to dig into the proposal in Luxembourg on Oct. 10.
“The goal [in Copenhagen] is to gather sufficient support from other countries to isolate Orbán,” an EU diplomat said on the condition of anonymity to speak freely. “We’re in the gray area.”
Germany, Spain, Poland, and the Baltic countries bordering Ukraine are key supporters of the Commission’s plan. But France and Italy have been previously cautious about any innovative ideas to use the immobilized state assets.
Hungary’s Secretary of State for International Communication, Zoltán Kovács, did not respond to requests for comment.
Brussels’ €140-billion bet
The bulk of Russian state assets have been frozen at Euroclear since Putin launched a full-scale invasion of Ukraine in February 2022. A large part of them were invested into Western government bonds that have matured into cash. This cash currently sits in a deposit account with the European Central Bank.
Brussels has previously toyed with the idea of using the frozen assets, but previous attempts to use the sanctioned cash were met with strong political resistance.
The Reparations Loan would be disbursed in tranches and used for “European defence cooperation” and “to cover budget needs,” the Commission said in a note.
A veto from Budapest would effectively hand the Russian cash back to Moscow, leaving capitals on the hook to pay back the loan. The new workaround would reduce this risk. But several countries are worried that using old political statements to dictate future policy will set a dangerous precedent.
“Hungary has sufficient grounds to mount a legal case,” said a second EU diplomat. Another one said that “if the skeptics don’t flip, there is no Orbán question.”
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