By Julia Payne and Andrew Gray
BRUSSELS (Reuters) -European Union states including Germany and France are opposed to the idea of issuing bonds to maximise the impact of the planned use of the profits generated by frozen Russian assets to help Ukraine, officials and diplomats said on Friday.
EU leaders on Thursday agreed to work on a plan that would allow them to use the proceeds from frozen Russian assets to help Ukraine within a few months, something which Moscow said would be theft with "catastrophic consequences" for banks.
The plan to use the frozen assets' profits reflects increasing alarm about the war, with Kyiv's outgunned forces struggling to hold back Russian troops and U.S. aid stalled.
The leaders agreed to work on a proposal that would see most of the profits channelled to an EU-run fund to buy arms. That idea is different from the suggestion of using bonds, which is being pushed by EU member Belgium and by the United States.
"I believe that what we will do is to use it (the money) directly and not to develop new vehicles now. In any case, this has not played a role in the debates here," German Chancellor Olaf Scholz said at the end of a two-day EU summit.
The idea to go further and set up new vehicles was not even discussed, he said.
Belgian Prime Minister Alexander De Croo, whose country holds the rotating EU presidency, argued for leveraging the frozen assets' proceeds as he arrived at the summit.
"You could also use them to go to the capital markets and use that as a yearly interest payment and then you could leverage it and leverage it and have a much bigger volume," he said.
But he added: "I understand that today it is maybe too early to do that."
Several EU diplomats confirmed France is among others who are also opposed to the idea.
One diplomat said: "It's a Belgian test balloon ... The Belgians have floated it before, but it hasn't gotten much traction thus far."
U.S. CONGRESS
European diplomats confirmed that Washington was also pushing for a similar idea. "It's not something we're keen on," one of the diplomats said.
"Americans are pushing this, but it's totally because of Congress," the diplomat said, referring to a $60 billion military aid package for Kyiv stuck in the U.S. Congress.
The diplomat said that since this concerned a war in Europe and Russian assets in Europe, there was no need for Washington to get involved.
Under the current EU plan, proceeds from the assets such as interest payments would go to the European Peace Facility, an off-budget fund that provides military aid to countries outside the EU and has been used mainly for Ukraine.
Some 70% of all Russian assets immobilised in the West is held in the Belgian central securities depository Euroclear, which has the equivalent of 190 billion euros worth of various Russian central bank securities and cash.
The proposal is to use profits from the assets held in Europe rather than the assets themselves.
The EU could be ready to use the first billion euros of profits on Russian assets for Ukraine as soon as the start of July, European Commission President Ursula von der Leyen said on Thursday.
For Belgium's De Croo, as the EU prepares to look in the coming months at how the plan would work, the idea of bonds is still an option.
"This is something that we as Belgians had designed and that will remain on the table," he said.