EC proposes that revenues generated by Russia's frozen assets should be channeled through EU budget to Ukraine - Dombrovskis

RIGA - The European Commission (EC) has prepared a proposal that the revenues generated by Russia's frozen assets should be channeled through the EU budget to Ukraine, said Valdis Dombrovskis (New Unity), Executive Vice President of the EC, at the World Economic Forum in Davos.

Dombrovskis noted that a decision has been taken at the Group of Seven (G7) level that Russian assets, including those of the Russian Central Bank, should remain frozen until Russia pays Ukraine reparations for the damage it caused.

"It is not foreseen that this money will be returned to Russia. The EC proposal to Member States provides that the income generated by the frozen assets does not belong to Russia, also instructing the relevant financial institutions to channel the income to a separate account. Potentially, these funds could be transferred to the European Union (EU) budget and used to support Ukraine," said the EC's Executive Vice President.

He explained that the proposal currently covers the first two steps, namely legal clarity that the income generated by the frozen assets does not belong to Russia and the creation of a separate account to further channel these funds to the EU budget, while a separate decision will have to be taken on the transfer of funds to Ukraine. Dombrovskis said that the way forward is clear and there are new discussions at G7 level on what to do with Russia's frozen assets, adding that work is ongoing in this direction.

The World Economic Forum was followed by a dinner called Shaping Tomorrow's Europe, at which Dombrovskis spoke on behalf of the EC. Looking back at the EC's achievements so far, Dombrovskis pointed out that in 2019, when the new EC took office, the key political priorities were the economic, green and digital transformation, and moving towards climate neutrality by 2025. He acknowledged that there had indeed been a lot of progress on these issues, but at the same time there had been challenges that no one could have foreseen in advance, namely, the Covid-19 pandemic and the war launched by Russia against Ukraine.

"We had to build a united EU response to these challenges, promoting the development of Covid-19 vaccines as quickly as possible, rolling out an EU-wide vaccination campaign, and creating a European Economic Recovery Resilience Fund to support the European economy in the context of these shocks. In the context of Russia's war in Ukraine, the REPowerEU initiative was introduced to support Member States to break their dependence on Russian energy imports and move more quickly towards renewable energy. There were also issues concerning European security and the development of the military industry," said the Executive Vice President.

Looking ahead to this year and the next, Dombrovskis sees European security and defense as high on the agenda. He pointed out that these are relatively new issues for the EU, but in the current geopolitical situation, where Russia is making aggressive conquests, the EU needs to strengthen its defense capacity and security.

"I think the EU will work much harder on this issue than it has ever done before. The long-term competitiveness of the EU economy will also be on the agenda. Here too there are enough challenges, such as the low productivity growth of the economy compared to many other major economies in the world, including the US and China. The focus will be more on competitiveness issues," said the EC's Executive Vice President.

He noted that the World Economic Forum also discussed the global geopolitical situation, not least China. In addition, Chinese Premier Li Qiang also attended the Forum. Dombrovskis pointed out that the EU continues to cooperate with China, which is the EU's second largest trading partner. He believes that the EU should cooperate with China on many global challenges, such as the fight against climate change, as China is the world's largest emitter of carbon dioxide.

The EC's Executive Vice President stressed that cooperation with China is essential if we want to tackle climate change issues globally. At the same time, Dombrovskis said, the risks posed by possible strategic dependencies on certain Chinese supplies must also be mitigated.

"I mentioned the strategic dependence on Russian natural gas supplies and the REPowerEU initiative to overcome this dependence. We are moving towards a green and digital economy. This requires different raw materials and materials to develop this economy. The world depends on China for around 80 percent of its supplies of these materials. Clearly, there is a need to build diversified and sustainable supply chains for critical raw materials and to diversify the sourcing, extraction and processing of materials outside China, including in the EU," Dombrovskis explained.

The EC's Executive Vice President pointed out that there is a large block of issues that are being addressed in relation to the availability of raw materials. He underlined that China is the EU's second largest trading partner, but at the same time this trade is unbalanced. Although not all the data are available for last year, in 2022, the trade deficit with China reached EUR 400 billion.

Dombrovskis stressed that trade needs to be more balanced, which is why the negotiations with China also highlight the trade barriers that exist in China and how European companies can improve access to the Chinese market and reduce the asymmetries that exist. At the moment, the European market is much more accessible to Chinese companies and goods than the Chinese market is to European companies and goods.

During the World Economic Forum, Dombrovskis also met with International Monetary Fund (IMF) Managing Director, Kristalina Georgieva. They discussed support for Ukraine. Dombrovskis pointed out that the year 2024 has begun and the IMF estimates that international donors should provide more than USD 40 billion in financing to Ukraine over the next 12 months.

"During the meeting we discussed how to secure this funding. The problem is that there is also a delay on the EU side. We, the EC, came last June with a proposal for a EUR 50 billion support program for Ukraine over the next four years, but Member States still have not reached unanimity on this issue. Hopefully, an agreement will be reached at the European Council on February 1," said Dombrovskis.

The EC's Executive Vice President also pointed out that the US is also behind schedule, which is why the question of how to ensure the availability of funding for Ukraine, in particular in the first quarter of this year, is important. Several countries have developed their own financial support packages, including Japan and Norway. Dombrovskis pointed out that Ukraine also has an IMF program, but there needs to be coordination between all donors to ensure that funding is available on the one hand, and on the other hand that there are coordinated requirements on the conditions that Ukraine would have to meet to have access to funding, bearing in mind that Ukraine is in the midst of active hostilities.

The World Economic Forum will also host a discussion called Where is Russia Headed?. Dombrovskis said that in this panel he would insist on all necessary support for Ukraine. He said that we must not relax, we must not allow ourselves to become war-weary - the focus must not shift, because this is not just about Ukraine, but about the security of Europe as a whole. He also noted that Russia makes no secret of its imperial ambitions and is ready to pursue other conquests.

"If we look, one of the slogans often used in the so-called presidential elections is that Russia's borders do not end anywhere. The international community has to be ready to react to this. We need to give all the support we can to Ukraine, because if Russia is not stopped in Ukraine, it will go further. The EU must also strengthen its defense capabilities. Unfortunately, this is a message that needs to be repeated again and again, because in countries geographically further away from Ukraine, the sense of threat is perhaps less pronounced and it is easier to lose focus," said Dombrovskis.

Earlier this week, ahead of the World Economic Forum, Dombrovskis held a videoconference with the Polish Ministers of Economy and Agriculture, where the issue of Ukrainian grain was also discussed. The EC's Executive Vice President explained that the EC is currently preparing proposals to extend trade liberalization measures for Ukraine. The EU has unilaterally opened its market to Ukrainian goods to support the Ukrainian economy during the war. A proposal is under preparation and will be announced shortly, which would extend trade liberalization until June 2025.

"This is about the situation in the countries bordering Ukraine, including Poland, in terms of the impact on the agricultural sector in these countries. It is not only a question of grain, but also of a number of other product groups. What we are proposing is to extend trade liberalization, with certain safeguards, which will allow us to react if there is a sharp increase in imports from Ukraine, which would destabilize the market situation in these countries," Dombrovskis said.

Dombrovskis added that the safeguards are a response to concerns expressed by Poland and other countries.