EU countries adopt plan to use profits from frozen Russian assets for Ukraine defence

FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels

BRUSSELS (Reuters) -EU countries have formally adopted a plan to use windfall profits from Russian central bank assets frozen in the EU for Ukraine's defence, the Belgian government said on Tuesday.

The text only needed a rubber-stamp by ministers after EU ambassadors reached the agreement in early May.

A senior Russian diplomat denounced the plan, saying it would have unpredictable consequences, with the EU obliged sooner or later have to return to Russia what it had "stolen".

Under the agreement, 90% of the proceeds will go into an EU-run fund for military aid for Ukraine against Russia's invasion, with the other 10% going to support Kyiv in other ways.

The EU expects the assets to yield about 15-20 billion euros ($16.30-$21.70 billion) in profits by 2027. The assets are gaining exceptional interest, resulting in so-called windfall profits. Ukraine is expected to receive the first tranche in July, EU diplomats said.

The Group of Seven countries (G7) froze around $300 billion worth of Russian financial assets soon after Moscow's invasion of Ukraine in 2022. Since then, the EU and other G7 countries have debated how and whether to use the funds to help Ukraine.

Ukrainian Foreign Minister Dmytro Kuleba thanked the EU for the decision on Tuesday but reiterated Ukraine's ultimate goal of seizing Russian financial assets, not just benefiting from interest.

"With all our gratitude for this decision today, the amounts are not commensurate (with the amount of frozen assets)," Kuleba told reporters.

"That is why the third step, which we have been talking about since the beginning of the year, should actually be the confiscation of the assets themselves," he added.

Russia's acting Permanent Representative to the EU, Kirill Logvinov, quoted by Tass news agency, said the proposal would "clearly have unpredictable consequences for the Eurozone, the economies of bloc members and the investment climate.

"The only predictable thing is that those in the EU will be obliged sooner or later to return to our country what has been stolen," Tass said Logvinov told Russian journalists in Brussels.

Russia has repeatedly warned the West of consequences if its assets are touched and accused Washington of bullying Europe to take more radical steps to thwart it in Ukraine.

U.S. Treasury Secretary Janet Yellen is pushing fellow G7 nations this week to agree a plan to use the profits as collateral to back a larger loan to help Ukraine.

($1 = 0.9204 euros)

(Reporting by Julia Payne, Yuliia Dysa, and Anastasiia MalenkoEditing by Ros Russell, Ron Popeski and Alistair Bell)