UPDATE 1-Belgium criticises EU proposal to use Russian frozen assets for Ukraine before its unveiling

The European Commission has been working for months on plans to use Russian state assets, frozen in Europe due to Moscow's war in Ukraine, to fund a "reparation loan" for Kyiv that would cover its financial needs for the next two years. But the idea has raised many legal questions and Belgium has been increasingly critical, saying it poses huge risks for the country and Brussels-based financial institution Euroclear, which holds the bulk of the assets.

Belgium criticised a European Union proposal to use Russian frozen assets, held in a Belgian financial institution, to channel 140 billion euros to Ukraine - even before the blueprint was unveiled on Wednesday. The European Commission has been working for months on plans to use Russian state assets, frozen in Europe due to Moscow's war in Ukraine, to fund a "reparation loan" for Kyiv that would cover its financial needs for the next two years.

But the idea has raised many legal questions and Belgium has been increasingly critical, saying it poses huge risks for the country and Brussels-based financial institution Euroclear, which holds the bulk of the assets. BELGIUM DEMANDS GUARANTEES FROM EU PARTNERS

Hours before the Commission was expected to set out its detailed legal proposals, Belgian Foreign Minister Maxime Prevot declared they fell short of Belgium's requirements. "We have the frustrating feeling of not having been heard. Our concerns are being downplayed," Prevot told reporters at a meeting of NATO foreign ministers in Brussels.

"The texts the Commission will table today do not address our concerns in a satisfactory manner," he added. Belgium has demanded that other EU countries guarantee to cover all legal costs arising from Russian lawsuits against the scheme. It also wants them to guarantee they would help provide money quickly to pay Russia back if a court ever ruled Moscow must be refunded.

Thirdly, it has demanded that other countries holding Russian frozen assets also make those funds available to Ukraine. 'NOT UNRESOLVABLE'

Prevot said Belgium's requirements were "not unresolvable", but he said there had been a lack of solidarity so far from other countries. As well as presenting its legal proposal to use the frozen assets, the Commission was also expected to leave open the possibility of borrowing on financial markets to fund Ukraine - or using a mix of the two options, four sources told Reuters.

Borrowing on the markets could enable the EU to get urgent funds to Ukraine while it tried to resolve the legal and political complexities surrounding the use of Russian frozen assets. Those complexities increased after a U.S.-backed 28-point plan to end the war in Ukraine proposed that some of the assets be used in a joint American-Russian investment vehicle.

But many EU governments would still much rather use the Russian assets than borrow money that they would have to repay at some point. Under the Commission's plan, Ukraine would only need to repay the loan if Russia paid reparations for damage caused by waging war against its neighbour. The Commission says the plan is legal as it does not amount to confiscation of Russia's sovereign assets.

A European Commission spokesperson did not comment on the substance of the proposed text, writing in response to a question from Reuters on Tuesday that commissioners "will discuss the financing options for Ukraine tomorrow at their weekly meeting" and are "due to adopt the respective legal proposals".

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