Frozen Assets, Frozen Will: Europe’s Missed Geopolitical Opportunity

In our last insight, we discussed the attempts made by the United States to reassert its role as the eminent military and imperialistic superpower. As one of the blocs poised to rise in the global hegemonic rankings, the European Union has all the necessary tools for success. However, its lack of progress is exemplified  by its indecision on two key issues: what to do with the approximately €210 billion in frozen Russian assets held in Brussels and the negotiations for the EU-Mercosur trade deal. During the European Council summit last week, leaders came together to discuss both of these issues in the hope of proving the bloc has the ability to act as a unified, geopolitical force. Whilst they did come up with funds to finance Ukraine, the “meagre” €90 billion falls short of what Ukraine needs over the next two years. On the other hand, another postponement of the Mercosur deal highlighted the different viewpoints of member states that rely on exporting and those that strive to protect their national industry. 

A deal over 25 years in the making, the ratification of the EU-Mercosur free trade agreement hit another roadblock this week when Italy and France requested more time to address farmers’ concerns. EU farmers have been protesting in Brussels this week as they fear the agreement - which will allow the import of cheaper imports from South America - will hinder the competitiveness of their produce. This exacerbated the friction that already existed between the EU and the group following the reduction of the funds made available for the Common Agricultural Policy (CAP) from €387 to €300 billion. 

The deal is especially important for both parties due to the entry into force of tariffs by major importers such as the United States and China. Tensions have been rising between negotiating parties as a result, with Brazil threatening to walk out if the bloc is forced to agree to more concessions. While showcasing the EU’s inability to execute a key policy objective, the situation also highlights significant divisions within the bloc. On one side, Italy, France and Poland are holding out due to the grievances of agricultural groups that wield significant political capital. On the other side, Germany is pushing for the deal to be ratified in hopes that it will revitalize its automotive industry, the backbone of Berlin’s economy. By appearing to be a sum of its parts rather than a whole, the EU is becoming a bloc increasingly entangled in its own bureaucratic web in a moment where it has the opportunity to lead. 

Vis-à-vis the deal on frozen Russian assets, whilst there were some positive takeaways, the outcome exposed the EU’s struggle to act decisively in moments of strategic need. After months of wrangling, leaders abandoned the more ambitious plan to use roughly €210 billion in immobilised Russian assets as collateral for a loan to Ukraine, as Belgium, France, Hungary, and Italy amongst others raised legal and financial concerns and resisted German pressure to go forward with the plan. The eventual compromise, a €90 billion loan financed by borrowing against the EU budget, with repayment formally contingent on future Russian reparations, delivers short-term support for Kyiv but shifts the burden to European taxpayer funds and leaves the core question of how to make Moscow pay essentially unresolved.

Rather than show how EU Member States are able to collaborate to achieve policy priorities, the way this outcome was reached underlines the depth of the bloc’s internal divisions. Rather than the Franco-German engine driving an ambitious solution, Berlin and Paris found themselves on opposite sides, with Macron ultimately aligning with Italy and Belgium countering Merz's proposal. Other member states (i.e., Hungary, Slovakia, and Czechia) obtained opt-outs diluting what was supposed to be a show of unity. The result is a package that looks like the lowest common denominator response, crafted to accommodate clashing legal interpretations, fiscal constraints and domestic political pressures rather than a shared strategic vision. Taken together with the new delay on the Mercosur deal, the frozen-assets episode reinforces the perception of a Union that can eventually improvise a “good enough” fix, but struggles to translate its economic weight into timely, coherent geopolitical action when it matters most.

Co-authored by Pablo Mustienes and Alessandro Ractliffe