UPDATE 1-Russia says EU proposal on loan and reparations to Ukraine is crazy, will draw tough response

(Adds Zakharova quote in paragraphs 3-4) By Dmitry Antonov MOSCOW, Oct 2 (Reuters) – Russia said on Thursday the EU's idea of using frozen Russian assets to provide loans for Ukraine, to be repaid eventually using war reparations from Moscow, was "delusional" and would prompt it to retaliate very harshly. Foreign Ministry spokeswoman Maria Zakharova said Russia wanted to remind European Union governments – especially Belgium, where most of the Russian assets are frozen – to comply with their international obligations. "In accordance with the principle of reciprocity, any EU attack on our property will be met with a very harsh response. They know this, too," Zakharova told reporters. "Russia has a sufficient arsenal of countermeasures and capabilities for an appropriate political and economic response." WHAT DOES THE EU PLAN INVOLVE? The EU is working on ways to finance Ukraine’s defence and reconstruction using frozen Russian central bank assets, although without confiscating them. It would involve issuing a loan to Ukraine, to be repaid if and when Ukraine receives war reparations from Russia in a peace agreement. Zakharova mocked the entire scheme. "I don't even want to discuss the concept itself, it's so delusional. But the word reparations caught my attention… What kind of reparations payments is (EU Commission President) Ursula von der Leyen even talking about?" she said. Zakharova said Russia was winning the war against Ukraine , and reparations were paid by losers. Of some $300 billion in frozen assets, 210 billion euros ($247 billion) are held in Europe, of which 185 billion euros are in Euroclear, a Brussels-based central securities depository. The proposed loan would be made using cash that has accumulated as these securities have matured. Russia has not said how it will respond, but analysts say it is likely to target assets of Western companies still operating in the country. Independent Russian financial outlet The Bell said this week that the EU plan could unleash a "major war of confiscation between Moscow and Europe". ($1 = 0.8511 euros) (Reporting by Dmitry Antonov; writing by Mark Trevelyan; editing by Mark Heinrich)

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