Seize Russia’s Money — Stop Dithering

Delay is perhaps the defining tactic of European Union (EU) negotiations. Compromise? Yes, it does that. Talk? It does a lot of that. Meetings? More than anyone could ever want.  

But delay is at the heart of the system. This may not matter too much when the subject under debate is milking machine regulations. But when it concerns Europe’s future, some say its current existence, delay has a price. 

As the EU has now discovered. While it decided in November to delay a decision on handing at least €140bn ($162bn) in frozen Central Bank of Russia (CBR) assets to Ukraine, it was actually rolling the dice. 

Without its knowledge, the US and Russia were negotiating a new 28-point plan for “peace” in Ukraine that included provisions for the use of the frozen funds. Any such agreement would not just take what may well be Ukraine’s financial lifeline, but would also end the current system of (smaller) loans based on those assets. 

One reason why European governments and the European Commission were so electrified by the plan was just this. It threatens not just Ukraine but also the continent’s future support. Anxious European diplomats have worked hard to remove those points from the plan now being worked on by the Trump administration and Ukraine. 

They may succeed. But surely even the Belgian government, which has been the main barrier to progress, now understands what is at stake? 

Let’s hope so.  

Commission President Ursula von der Leyen told EU parliamentarians this week that the Commission will finally announce the legal framework to allow the use of immobilized CBR assets to facilitate €140bn in loans to Ukraine. The Commission was reportedly accelerating this work on November 26, which may just be a polite term for panic. The UK, with about $32bn in Russian assets, will also contribute, and others, including Japan, may do so. 

The Witkoff-Dimitriev 28-point plan would have allocated only $100bn of the estimated $300bn plus of immobilized CBR assets in Western jurisdictions to Ukraine. Or rather, the beneficiary would have been a joint US-Ukraine investment vehicle, with the US getting 50% of the profits.  

Even more worryingly, from the European perspective, the rest of the CBR assets would return to Russia, again for use in partnership with the US. This would not only leave a huge hole in the EC’s current plans to utilize the CBR assets to cover the above Ukraine financing gap, but G7 countries would be back on the hook then for the $50bn Extraordinary Revenue Arrangement (ERA) where the future interest stream on immobilized CBR assets has been used to finance Ukraine to date. If there are no underlying assets left immobilized, there is no income stream. We have a problem, Houston (or Brussels). 

The EC is still minded to go down its reparation loan (RL) approach. This does not involve the formal seizure of the CBR assets but their creative repurposing. The assets would be moved out of Euroclear and other depositories where they are held, via the European Central Bank/EU, which issues a debt contract, and then lent onwards to Ukraine via the RL.  

The RL is a long-term zero-coupon instrument that implies repayment upon receipt by Ukraine of reparations by Russia. If this does not happen, and/or the immobilization is lifted either by the courts or a failure of the EU to retain unanimity on sanctions, the EU is then on the hook for the full nine yards, or €140bn-plus.  

Euroclear, in Belgium, is thought to hold the bulk of these assets in the EU, likely around €190bn. And surprise, surprise, Belgium, and Euroclear have run effective campaigns over the past three and a half years to fend off efforts to utilize the underlying assets.  

Belgium has complained that any such move could be deemed illegal, and hence would leave it on the hook for hundreds of billions of euros in potential claims, and other malign actions, from Russia. It has also been claimed that any such move could undermine confidence in the euro and Euroclear itself, which is systemic to global markets. 

Belgium has some reason to be concerned (although it’s clear its worries can be ameliorated).  

But it is hard to be that sympathetic to the Belgian position when its government is still sitting on upwards of €4bn in windfall profits from the immobilized CBR assets from 2022-2023, which has more than made up for its own aid commitments to Ukraine. Belgium is hence one of the lowest net contributors to Ukraine. And the impression sticks that Belgium is a free rider on other NATO allies, and now Ukraine, for its defense, given that it has been at the bottom of NATO defense spenders for decades.  

Belgium’s Prime Minister Bart de Wever has been vocal in his opposition to using immobilized CBR assets but less vocal in providing alternatives. The realistic alternative is the European taxpayer, and particularly the German taxpayer, something understood and accepted by the Germans, who now effectively lead Europe’s hard geostrategic policy — the funding charge is led by Chancellor Friedrich Merz with his compatriot, Von der Leyen. 

Europe may have done enough to rescue the situation and Ukraine’s financing needs in the process. But this situation came about because of the EU’s instinct for dithering. It must learn the lesson. 

Because if we don’t fund Ukraine, it loses the war, and then the costs to Europe in terms of much higher defense spending — likely an extra €1 trillion a year (my fellow CEPA writer Jan Kallberg makes a similar point here, though at a somewhat lower estimate of $520bn annually).  

Either figure would mean hugely bigger budget deficits, more borrowing, higher interest rates, lower growth, and a weaker euro. 

Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management. He is a regular contributor to CEPA’s Europe’s Edge and is an Associate Fellow at Chatham House on their Russia and Eurasian program.    

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.