By Andrew Gray and Jan Strupczewski
BRUSSELS (Reuters) -European Union leaders will on Thursday discuss a plan to use billions of euros in profits from frozen Russian financial assets to buy arms for Ukraine as they try to bolster Kyiv in its fight against Moscow's invasion.
The bloc's 27 national leaders will also debate how Europe can do more to defend itself and boost its arms industry, reflecting fears that Russia may not stop at Ukraine and the U.S. may not be such a staunch protector of Europe in future.
"For decades, Europe has not invested enough in its security and defence," Charles Michel, president of the European Council of EU leaders, wrote in his invitation letter for the summit.
"Now that we are facing the biggest security threat since the Second World War, it is high time we take radical and concrete steps to be defence-ready and put the EU's economy on a 'war footing'."
In a two-day summit in Brussels due to start at 1200 GMT on Thursday, the EU leaders will also tackle topics as diverse as the war in Gaza, the prospect of opening membership talks with Bosnia and farmers' protests.
But Ukraine will top the agenda, with President Volodymyr Zelenskiy joining the leaders via video link.
EU leaders have voiced increasing alarm about the state of the war in recent weeks, with ammunition-starved Ukrainian forces struggling to hold back Russian troops and a $60 billion military aid package for Kyiv stuck in the U.S. Congress.
The European Commission, the EU’s executive body, this week proposed taking profits from Russian assets frozen in Europe after Moscow’s invasion and transferring some 90% to an EU-run fund used to finance arms for Kyiv.
The Commission estimated the profits on the assets - various Russian central bank securities and cash - could be between 2.5 billion euros ($2.73 billion) and 3 billion euros per year.
Russia on Wednesday described the EU plan as banditism and theft.
Belgian Prime Minister Alexander De Croo welcomed the proposal.
"I think it's a sensible way of doing it. I think the idea to allocate it predominantly to the purchase of weapons makes total sense," he told Reuters.
The assets are frozen by EU central securities depositories, mainly Belgium's Euroclear. Ukraine would also receive the 25% tax that the Belgian government puts on the profits.
The idea of using the proceeds to benefit Ukraine enjoys broad support among EU governments, diplomats say. But using the money to buy weapons is more problematic for some countries.
HOW WILL ORBAN REACT?
Much attention will focus on the reaction of Hungarian Prime Minister Viktor Orban, who maintains closer ties to Moscow than other EU leaders and opposes sending arms to Ukraine.
The proposal also raises questions for neutral or militarily non-aligned countries such as Malta, Austria and Ireland.
No final decision is expected at the summit. But leaders will indicate how the EU should proceed with the proposal.
A draft summit declaration said leaders "reviewed progress" on using the revenues "for the benefit of Ukraine, including possibly for funding military support" and asks EU bodies to "take work forward".
It also says the EU "is committed to increasing its overall defence readiness and capabilities to match its needs and ambition" amid "rising threats and security challenges".
It invites officials to scrutinise a European Commission plan to boost Europe's arms industry by incentivising EU countries to buy European, and club together on joint projects.
The leaders are expected to discuss the vexed question of how greater defence spending should be financed.
French President Emmanuel Macron and others have embraced a proposal by Estonian Prime Minister Kaja Kallas for European defence bonds. But other countries, including fiscally cautious Germany, Austria, the Netherlands and Sweden, are sceptical.
On the war in Gaza, diplomats have been struggling to find a balance in the text that satisfies close allies of Israel such as Hungary, the Czech Republic and Austria as well as strong advocates of the Palestinians such as Spain, Ireland and Belgium.
"The text we have now is a fragile vase. I hope this fragile construct will stay," said a senior EU diplomat.
($1 = 0.9151 euros)
(Reporting by Andrew Gray and Jan Strupczewski; Additional reporting by Gabriela Baczynska, Philip Blenkinsop, John Irish, Nette Noestlinger, Kate Abnett, Julia Payne and Andreas Rinke; Editing by Lincoln Feast, Ingrid Melander and Alison Williams)
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