By Lauren Kent, Olesya Dmitracova, CNN
(CNN) — The European Union is on the precipice of a momentous decision on whether to use frozen Russian assets to finance more support for Ukraine, an unprecedented plan that has set up a clash between the many member states that support it and Belgium, where the lion’s share of the assets is held.
EU leaders are due to decide on the measure at a crucial summit scheduled for Thursday and Friday.
But such potential use of the assets is steeped in controversy – critics argue it is legally questionable and risks retaliation by Moscow.
It’s a big moment for Europe, and disagreements surrounding the funding proposal are putting EU divisions on display at a time when the bloc faces increased scrutiny from the United States, which has its own ambitions for the frozen assets.
The EU has committed to financing Ukraine for the next two years either way, so if the contentious proposal doesn’t pass, European governments will need to find the money elsewhere amid growing fatigue with the war and pressure on public finances.
It also comes as the temperature of Russian threats to Europe is rising, and the Kremlin has warned that any appropriation of the assets won’t go unpunished.
What exactly is on the table?
The EU immobilized the local assets of the Russian central bank in 2022 as part of sanctions over Moscow’s war in Ukraine. Until now, the bloc has been using the interest from the assets – which are mostly bonds – to finance some of its support for Kyiv.
But on December 3, the European Commission unveiled a proposal to go further and also use the main part of the assets to extend a loan to the war-torn country. The EU’s executive arm referred to that principal, as well as the interest and other income from the assets, as “cash balances” since, as the bonds mature, they are turned into cash.
The commission noted that, because of the EU sanctions, any payments of principal and income from the assets to Russia’s central bank are prohibited, and it argued that the resulting cash balances are not the bank’s property.
“We’re taking the cash balances, we’re providing them to Ukraine as a loan, and Ukraine has to pay back this loan if and when Russia is paying reparations,” European Commission President Ursula von der Leyen told reporters.
The Russian central bank assets held in the bloc are worth about €210 billion ($246 billion). “This is therefore the maximum loan amount we could propose,” said Valdis Dombrovskis, a senior commission official in charge of economic policy.
Over the next two years, the commission wants to lend Ukraine €90 billion ($105 billion) of that amount, covering two-thirds of what the International Monetary Fund estimates the country will need in 2026 and 2027 for civilian and military purposes.
The so-called reparations loan needs to be approved by a “qualified majority,” von der Leyen said, meaning that more than half of the EU’s member states, representing at least 65% of the bloc’s population, will need to vote in favor.
The loan has been proposed at a time when a number of European governments, including Germany, Poland and the Baltic states, are keen to find new ways to finance Ukraine, after years of EU taxpayers picking up the tab.
Also on December 3, the Euro