The European Commission has been under pressure to secure long-term financing for Kyiv. Its most likely option — a €140bn “reparation loan” backed by immobilised Russian state assets — has drawn criticism from Euroclear, the main custodian of the funds.
According to the Financial Times, Euroclear chief executive Valérie Urbain warned in a letter that “the resultant risk premium will lead to a sustained increase in European sovereign bond spreads, raising borrowing costs for all member states”.
The concern centres on whether investors view the scheme as amounting to confiscation, which is prohibited under international law. Any perception that foreign reserves held in Europe could be at risk might undermine trust in European financial systems, driving up bond yields.
Yet analysts interviewed by Euronews Business say the current proposal carries far less risk than the EU’s original move in 2022 to freeze Russian central-bank assets — an action that caused only a brief shift in bond markets.
Robert Timper, chief strategist on the Global Fixed Income Strategy team at BCA Research, said: “I don’t expect much of a market reaction to this, so there won’t be any cost to governments in terms of a higher debt service cost.”
He continued: “The immobilisation of Russian assets in 2022 was a first and is what mattered for asset owners, as it meant that they lost access to these assets”. He claimed: “What ultimately is done with these assets should have a much smaller effect.”
The EU froze billions of euros of Russian assets on 28 February 2022, four days after Moscow launched its full-scale invasion of Ukraine.
Nicolas Véron, senior fellow at the Brussels-based think tank Bruegel, said: “It was a constraint put on the Russian reserves and therefore a demonstration to the world that, given the circumstances, the EU was willing to put big constraints on reserves held on its territory.” He added: “That didn’t rock global markets.”
Capital Economics similarly argued that fears of a broad retreat by foreign central banks or sovereign wealth funds from European markets are overstated. “Even if there is some loss of confidence, the impact would likely be small as there is a limited range of liquid, high-quality assets that central banks can invest in outside Western financial markets,” it wrote in a recent report.
Concerning the shifting trends in the bond market, Timper added that since the immobilisation of the Russian assets in 2022, “we have observed a broad shift by central banks, especially in China and emerging markets, to gold as a reserve asset. This trend is likely to continue, but was already underway before the recent discussions around the use of Russian assets.” He expects this diversification trend to continue but added that so far this “has had little effect on sovereign bonds”.
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