Pick Putin’s pockets to pay for the war against him

European countries are scrambling to create a “coalition of the willing”: to plug gaps in aid for Ukraine left by American disengagement, to fund a peacekeeping force if a truce can be agreed and to rearm their own militaries to face the next round of aggression from Russia.

So if war is, as Clausewitz suggested, “the continuation of politics with other means”, then it is also ultimately a question of money.

The USA has provided around $66 billion in military aid since the full-scale invasion of February 2022. EU countries have provided $53bn and are proposing an additional $40bn this year.

For European rearmament, the European Parliament last week backed a call to create a new Defence, Security and Resilience Bank, and to unblock the European Investment Bank for defence funding, while here Rachel Reeves has pledged to unlock the £28bn National Wealth Fund for defence investment.

But with bond yields high, and many European states over the limits of their own fiscal rules, there is a much easier source of money than borrowing: the $300bn of Russian foreign exchange reserves currently frozen in the US and European banking system.

Both the USA and EU have passed legislation allowing them to confiscate, rather than simply freeze these assets. Meanwhile the G7 has pledged to use $50bn worth of interest generated by the frozen assets to extend defence loans to Ukraine – with Rachel Reeves offering a £2.26bn loan to Kyiv, funded from Britain’s portion of the loot this month.

But we are now approaching crunch time, not just over the fate of the money itself but over the strategic impact of seizing it. Ukraine’s war damage has been estimated at close to half a trillion so far. The cost of rearming Europe may run to at least €250bn a year above what’s being spent now.

So wiping out $300bn worth of Russia’s foreign exchange reserves by handing it to Ukraine won’t solve the rearmament and reconstruction in the long term: but it will surely help. And if it speeds the self-destruction of the Putin regime, so much better.

But European governments remain wary of seizure, while some in Ukraine now believe Trump wants simply to give it back, as a gesture of goodwill.

So the fate of the money and the fate of Ukraine are linked. Either Europe decides to punish Russia proactively, by confiscating the money and using it for rearmament and stabilisation, or Trump and Putin conspire to settle the matter.

Legally, the argument for confiscation is watertight. International law says that it is legal for states to take countermeasures against states that commit wars of aggression. A legal opinion published by the IISS in May 2024 argues that UN Resolutions and ICC judgments against Russia establish the case that its war on Ukraine is illegal.

So the opposition to outright seizure is being driven by fears of the financial consequences, and by realpolitik.

Under Olaf Scholz, Germany consistently opposed seizing the $300bn on the grounds that it would create a precedent for new claims against Germany arising from the second world war. Japan has backed that stance, for similar reasons.

In addition, much of Europe’s financial bureaucracy – including the ECB and Euroclear – is worried that if European states or the EU itself were to seize the money, it would undermine confidence in the euro as a secondary global currency, and strengthen the dollar.

A third set of objections revolves around the capacity of Ukraine itself to absorb and manage the money. Its governance remains immature, parts of its business culture scarred by corruption. And even the best of governments might be overwhelmed by suddenly receiving cash on this grand scale.

But the strategic advantages of confiscation should overcome these fears. European governments are still not sure what the Trump administration’s endgame is. Some fear the worst – that a faction around Musk and JD Vance want an outright deal with Russia to carve up the Arctic and leave Europe to Putin’s mercy. Others believe the current tantrum is a negotiating tactic to force Europe to pay its way.

My approach to this dilemma is the one advocated by the Italian Marxist Antonio Gramsci: optimism of the will, pessimism of the intellect. If Musk and co get their way, and Trump adopts strategic appeasement of Vladimir Putin, then it’s not just the Ukrainians who will need the money but us, the Europeans left having to cobble together a strategic defensive shield.

That’s why, as they put together a military and diplomatic coalition to make security guarantees to Ukraine real, European and other Western states should pre-emptively seize the Russian money.

Most of it is in the European banking system, and out of the reach of Trump. It could be transferred at a stroke to a new entity – for example the Ukraine Reconstruction and Restitution Bank proposed by the International Centre for Ukrainian Victory. The new bank would be set up under joint control of the G7, EU and the Ukrainian government, with gold standard scrutiny and transparency measures.

It could, at the very least, finance the troop deployments needed to ensure the peace, pump prime the reconstruction of Ukraine’s economy and fund the much-needed measures to alleviate injury and trauma among ex-combatants.

At a broader level, Ukrainian society – resilient though it has been – will need stabilisation aid from outside: a mixture of money, expertise and soft power aimed at blocking Putin’s attempts to further destabilise the war-torn state. There is no better way for Western countries to reduce the burden on their own taxpayers than to confiscate Russia’s billions.

Yes, it smells a bit like Versailles in 1919, whose reparations eventually pushed Weimar Germany into fascism. But Germany was defeated by 1919 and Russia isn’t.

The only way to prise Russia away from the new axis of totalitarianism is to collapse the regime. Arming yourself with $300bn of the regime’s own money in advance of that eventuality is the sensible thing to do.