Lisbon Endorses EU Scheme Tapping Russian Reserve Interest for Ukraine

Lisbon sees an opening in Europe’s most delicate financial chess match. If Brussels succeeds in turning the €210 B in immobilised Russian central-bank reserves into long-term funding for Kyiv, Portugal intends to be more than a bystander. The government in São Bento calls the idea “well-designed”, yet wants an extra legal lock on the door before any money is moved.

Why the debate resonates on the Tagus

Even though only about €25 M in Russian assets are frozen inside Portugal, the outcome will shape how much Lisbon must eventually contribute to Ukraine out of its own budget. “Every euro that comes from sanctioned funds is a euro Portuguese taxpayers do not have to find,” an official in the Finance Ministry told Público this week. The calculation matters at a time when public debt still hovers near 98 % of GDP and election-year promises of extra spending crowd the domestic agenda.

A workaround, not a confiscation

The European Commission’s blueprint relies on the interest earned by the frozen reserves rather than the principal. Under the so-called Reparations Loan, a special-purpose vehicle would issue zero-coupon bonds whose collateral is the cash piling up inside the Euroclear settlement house in Brussels. Ukraine would start receiving disbursements almost immediately. Repayment would fall due only “once Russia honours war-damage claims”, Commission President Ursula von der Leyen has argued, calling the mechanism “the most legally sound path” given the immunity usually enjoyed by sovereign assets.

Lisbon’s supportive-but-careful posture

Prime Minister Luís Montenegro told reporters in Granada after the last European Political Community summit that the proposal is “a thought-through solution” Portugal is ready to endorse. Still, he insisted the legal scaffolding must be reinforced to avoid “future vulnerabilities”. In practice that means Treasury lawyers, the Banco de Portugal and the Attorney-General’s office are combing through the draft regulation to ensure any transfer survives a possible challenge at the Court of Justice of the EU. Earlier missteps—such as the 2022 asset-seizure order that was partially overturned in French courts—are fresh in policymakers’ minds.

How much has already moved

Since January the bloc has channelled €4 B to Kyiv, half of it earmarked for drone production, while the G7 unlocked $25.5 B under similar arrangements. Brussels estimates the scheme could free up roughly €3 B each year so long as rates stay elevated. Finance Minister João Nuno Mendes argues that even modest annual inflows give Ukraine the budgetary visibility it craves. They also reduce the need for ad-hoc pledges that require unanimity among 27 governments—an increasingly fraught exercise.

Legal and diplomatic trip-wires

Portuguese constitutional scholars generally agree that property rights stop short at sanctions adopted under Chapter 7 of the United Nations Charter, yet they caution that transforming a freeze into a revenue stream still tests the limits of international-law norms on sovereign immunity. José Miguel Júdice, a veteran arbitrator, warns the plan could set a precedent other countries might one day use “against European assets”. Meanwhile in Moscow the Foreign Ministry brands the initiative “sheer theft” and threatens to retaliate by selling off western holdings inside Russia.

Potential ripple effects for Portuguese business

EDP, Sonae and several cork producers maintain joint ventures in the Russian market even after winding down operations. A unilateral Russian move to nationalise foreign-owned factories would leave them exposed. The Foreign Affairs Committee in Portugal’s Assembly is already collecting impact assessments from firms with outstanding ruble-denominated loans and has scheduled a hearing with the Chamber of Commerce Portugal-Russia later this month.

What happens next

Brussels hopes to have the special-purpose vehicle issuing debt before year-end. For that to happen the Council must sign off on a final text that assuages the legal concerns voiced by Belgium and France, whose banks handle most of the immobilised assets. Montenegro says Portugal will push for language that explicitly shields member states from litigation costs, a clause diplomats believe could unblock the file. Once adopted, the mechanism would automatically scoop up the quarterly interest credited to the frozen accounts—money Lisbon’s foreign-affairs team now describes as “already politically forfeited by Moscow” even if not yet legally confiscated.

Portugal’s own slice of the pie may be small, but the precedent is enormous. If the plan survives court challenges—and if it averts Russian reprisals—Europe will have forged a novel tool of economic statecraft. Lisbon, eager to prove its Atlanticist credentials without writing bigger cheques, is betting that tool will hold.