Europe faces a long-term financing challenge in Ukraine that extends far beyond reconstruction alone. The latest joint assessment by the World Bank, European Commission, United Nations and Government of Ukraine estimates Ukraine’s reconstruction and recovery needs at almost $588 billion over the next decade, while the Ukrainian government’s broader recovery vision has discussed financing needs exceeding $800 billion. These estimates do not fully capture the additional long-term requirements associated with defence and deterrence, compensation for victims, debt sustainability and Ukraine’s convergence with the EU.
Ukraine’s victory and successful recovery are European strategic interests. Victory is necessary to end Russia’s aggression on terms that preserve Ukraine’s sovereignty and security; reconstruction, defence, deterrence and long-term economic development are necessary to make that victory durable. Europe therefore needs a sustainable financial strategy capable of ensuring both.
The approximately €290 billion in immobilised assets of the Central Bank of Russia (CBR assets), almost €210 billion of which are located in EU jurisdictions, represent the only currently available pool of capital remotely comparable in scale to this challenge. Ukraine’s partners have already progressively moved beyond simple immobilisation by redirecting windfall profits to Ukraine, establishing the G7 ERA Loans initiative and strengthening the legal framework preventing the assets’ return to Russia.
Yet the underlying capital remains largely outside productive use while indefinite immobilisation cannot be treated as a sustainable solution. It neither maximises the economic potential of the assets nor guarantees that they will remain available for Ukraine indefinitely as governments, political priorities and the international environment change dynamically.
This paper proposes a third policy option beyond the existing binary choice between continued immobilisation and outright confiscation: transfer the assets into a dedicated Ukraine Fund and begin putting them to productive use already now. The Fund could be structured so that Russia retains formal ownership rights while custody and economic management of the assets are transferred to a dedicated vehicle. The legal analysis explores international countermeasures, a “bad bank” structure and an EU special-purpose vehicle established under Article 122 TFEU as potential components of this architecture. Amounts of principal deployed by the Fund could ultimately be replenished from reparations paid by Russia or set off against Russia’s outstanding reparation obligation.
Transferring the assets would also address a structural weakness of the status quo: the concentration of political, legal and security risk in Belgium and Euroclear. A collectively governed European vehicle, potentially involving G7 and other partners, could redistribute this exposure, while remaining financial and legal risks could be shared collectively rather than remaining disproportionately Belgian. The negotiations on the 2028-2034 Multiannual Financial Framework provide an opportunity to design such indemnification and risk-sharing arrangements ex ante, rather than seeking ad hoc national guarantees once liabilities have arisen.
The Fund should draw on the governance principles of Norway’s Government Pension Fund Global: a clear political mandate combined with independent professional investment management, diversification, transparency and a long investment horizon. Norway’s experience illustrates the potential of this approach. By 2026, the GPFG’s cumulative investment returns had reached approximately NOK 15.2 trillion (around €1.4 trillion), roughly 2.7 times the total capital contributed to the Fund. With an average annual return of approximately 6.9% since 1998, investment returns rather than new resource revenues have gradually become the principal driver of its growth. The lesson from Norway is that professionally managed sovereign capital can generate substantial additional value through disciplined governance and compounding.
Ukraine, however, requires a hybrid rather than a traditional sovereign wealth fund. The Ukraine Fund should combine financing for immediate defence, reconstruction and compensation needs with guarantees, war-risk insurance and blended-finance instruments capable of mobilising private investment, while preserving a substantial long-term endowment. Active management would inevitably involve negative years, but the relevant comparison rests not between risk and no-risk status quo. Conservative management also entails inflation, interest-rate and reinvestment risks, as well as the opportunity cost of foregone compound returns. Investment risk should therefore be managed through diversification, liquidity reserves, differentiated investment horizons and professional governance rather than used as a justification for inaction.
Illustrative modelling conducted for this paper demonstrates the potential scale of the resulting financial capacity. Starting with a $300 billion asset base, under a central assumption of a 6.5% average annual nominal return, different combinations of immediate spending, private-capital mobilisation, long-term investment and debt servicing generate approximately $585-677 billion in cumulative economic value over 30 years, while retaining approximately $36-112 billion in endowment capital at the end of the period. These scenarios are illustrative rather than predictive. Their purpose is to demonstrate that the policy choice concerns not simply how to spend a finite stock of Russian assets, but how to transform it into a productive financial base capable of generating additional value over decades.
The Fund should simultaneously advance wider European and international interests. Part of its portfolio could be invested in high-quality European financial assets, energy and strategic infrastructure, defence-industrial capacity, critical technologies and joint European-Ukrainian defence production. It could pre-finance investments required for Ukraine’s future EU convergence, reducing pressure on future European budgets, and provide an institutional platform for participation by partners beyond the G7, including Gulf states and their sovereign investors. Rather than treating Ukraine’s reconstruction solely as a continuing fiscal burden, the Fund could align Ukraine’s recovery with European security, industrial and investment priorities.
Finally, a permanently capitalised Ukraine Fund could itself contribute to long-term deterrence. Russia’s strategy relies in part on the expectation that it can outlast Ukraine and its partners and that Western financial support will eventually weaken. Providing Ukraine with predictable financial capacity for reconstruction, resilience and defence over decades rather than annual budget and electoral cycles would weaken this assumption. The stronger and more predictable Ukraine’s long-term financial capacity becomes, the less credible a strategy based on exhaustion, destruction and waiting for Western support to collapse becomes.
The central policy conclusion is therefore not simply that approximately €290 billion in Russian sovereign assets should eventually be spent on Ukraine. Europe has a window of opportunity to transform these assets into a long-term financial instrument capable of helping Ukraine secure its victory, compensate the victims of Russian aggression, finance reconstruction and defence, mobilise additional capital and sustain the economic capacity required to make that victory durable. Leaving the assets largely idle risks preserving the liabilities of the current arrangement without capturing its potential economic and strategic benefits — while leaving open the possibility that changing political circumstances may one day enable their return to Russia.
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