{"id":598779,"date":"2025-11-28T07:35:26","date_gmt":"2025-11-28T07:35:26","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/598779\/"},"modified":"2025-11-28T07:35:26","modified_gmt":"2025-11-28T07:35:26","slug":"europe-debates-the-future-of-russias-frozen-assets","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/598779\/","title":{"rendered":"Europe debates the future of Russia\u2019s frozen assets"},"content":{"rendered":"

Ukraine<\/a> is facing a harsh winter, and more will likely follow. Over the next two years, the war-ravaged country is staring down a $65 billion hole in its budget<\/a>, according to the International Monetary Fund\u2019s (IMF) best estimates.<\/p>\n

Almost\u00a0two-thirds of the country\u2019s stretched budget<\/a>\u00a0currently goes towards funding what has become a grinding war of attrition<\/a> to hold back the Russian advance. The day-to-day needs of Ukraine\u2019s citizens \u2013 including pension payments and public-sector salaries \u2013 are largely covered by foreign aid from its Western allies.<\/p>\n

Since President Donald Trump\u2019s return to office in January, the US \u2013 formerly Ukraine\u2019s foremost single backer \u2013 has allocated no new funds for Ukraine<\/a>, forcing Europe<\/a> to scramble to fill the gap in both military and humanitarian aid<\/a>.<\/p>\n

And while\u00a0the European Commission<\/a> has pledged to mobilise up to \u20ac100 billion<\/a>\u00a0for Ukraine when the EU’s next budget begins in 2028, finding ways to keep money flowing to Kyiv until then has not been easy. <\/p>\n

Which brings us to the $300 billion elephant in the room. For years, Russia\u2019s central bank has invested its foreign exchange reserves abroad in bonds and other securities.\u00a0These assets now sit frozen in banks and clearing houses in Europe and beyond, immobilised under Western sanctions<\/a> since Russia\u2019s full-scale invasion began\u00a0in 2022.<\/p>\n

Since then, Europe has been split over what to do with these funds.\u00a0France<\/a> and Germany<\/a> have baulked at repeated urging from the Biden administration, Poland<\/a> and the Baltic and Nordic states to seize these assets to fund Ukraine\u2019s fight against Russia<\/a>.<\/p>\n

As state property, these assets \u2013 which Russia still owns, even if it cannot touch them \u2013 are immune to seizure under international law. Moscow has made it clear<\/a> that it would launch immediate legal action against any such expropriation, likely seizing the unknown amount of Western assets that Russia has frozen in retaliation.<\/p>\n

Paris and Berlin have also raised fears that unilaterally confiscating hundreds of billions worth of sovereign assets could scare investors away from European financial markets.<\/p>\n

But as pressure mounts to raise funds for Ukraine, the European Commission has hit upon a way forward \u2013 a so-called reparations loan<\/a> that would allow the bloc to lend Ukraine some \u20ac140 billion without, it says, directly seizing the frozen funds.<\/p>\n

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It\u2019s a proposal explicitly designed to side-step the legal quagmire of outright confiscation, argued Nicolas V\u00e9ron, a senior fellow at the Brussels-based Bruegel think-tank and the Peterson Institute for International Economics.<\/p>\n

\u201cThe reparations loan is a very elegant piece of financial engineering \u2013 it solves a lot of problems at once,\u201d he said.\u00a0\u201cAnd one of the key features of the construct is that it really doesn\u2019t touch the Russian assets immobilised at Euroclear.\u201d<\/p>\n

Of the roughly $300 billion worth of frozen Russian central bank assets, the vast bulk is held in Europe \u2013\u00a0including some \u20ac185 billion in Euroclear<\/a>, a Brussels-based central securities depository.<\/p>\n

From what we know of the proposal, Euroclear would be required to issue an interest-free loan equivalent to the value of the frozen assets to the EU \u2013 the bulk of which has matured into cash.\u00a0Of that \u20ac185 billion, roughly \u20ac45 billion\u00a0would likely be used to pay back money that EU countries and their G7 allies have already loaned to Ukraine, financed by the interest earned by these frozen funds.<\/p>\n

The rest would be lent to Kyiv, which under the terms of the loan would not be required to repay it until it had received compensation from Moscow for the devastation wrought by the Russian invasion \u2013 the \u201creparations\u201d that give the loan its name. Until then, the assets would remain \u2013 as they are now \u2013 beyond Moscow\u2019s reach.<\/p>\n

\u201cThe reparations loan doesn\u2019t confiscate that cash, and it also doesn\u2019t threaten confiscation of that cash,\u201d V\u00e9ron said. \u201cAnd therefore it has no impact on Russian property \u2013 even so, of course, it\u2019s predicated on the notion that this cash will remain immobilised.\u201d<\/p>\n

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Not everyone is convinced by this financial workaround. In a letter to European Commission President Ursula von der Leyen<\/a> and EU Council President Antonio Costa\u00a0seen by the Financial Times<\/a>, Euroclear\u2019s chief executive Val\u00e9rie Urbain warned that investors \u2013 and Russia \u2013 would likely still see the forced loan as \u201cequivalent to confiscation\u201d.<\/p>\n

As Euroclear\u2019s host state, Belgium<\/a> has argued that it would be on the front line of any Russian retaliation \u2013 legal or otherwise. In the bloc\u2019s last summit in October, Belgian Prime Minister Bart De Wever refused to go along with the plan unless the rest of the bloc agreed to share the legal and financial risk. The bloc is set to meet again in Brussels on December 18.<\/p>\n

Alexander Kolyandr, a financial analyst and a senior scholar at the Center for European Policy Analysis, said that the risks to both Belgium and Euroclear were genuine.<\/p>\n

\u201cThey\u2019re worried that if Russia retaliates and nationalises Euroclear\u2019s account in Russia,\u00a0that might create a capital shortage that the Belgian government would be forced to cover\u00a0\u2013 so there\u2019s a financial risk as well,\u201d he said.<\/p>\n

\u201cIf Russia seizes Euroclear\u2019s account in Moscow, then it is possible that Euroclear clients, Western clients who invested in Russian assets and now see their assets frozen, will try to sue Euroclear and seek compensation.\u00a0And finally, when all these things happen, Euroclear is afraid \u2013 and I think this is a reasonable fear \u2013 that their clients will take their business elsewhere.\u201d<\/p>\n

Adding to the pressure facing the EU is the risk that Europe is not the only power eyeing the frozen funds. A 28-point peace proposal for the Ukraine war, initially backed by the US, called for $100 billion of the Russian assets to be\u00a0funnelled into the US-led reconstruction of Ukraine<\/a>\u00a0\u2013 investments for which Washington would receive 50 percent of the profits. Europe, for its part, would be required to put up $100 billion of its own money to match the investment. <\/p>\n

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A more concrete risk is the possibility that EU member states would end up being responsible for paying back the full 140-billion-euro\u00a0\u201creparations\u201d\u00a0loan should Russia refuse to pay war damages. While it won’t appear on their national budgets, EU member states will between them be responsible for guaranteeing the loan.<\/p>\n

V\u00e9ron said that the fact that European countries could find themselves forced to pay back the loan gave the bloc a strong incentive to do everything in its power to push Russia towards paying compensation to Kyiv.<\/p>\n

\u201cIf Russia pays reparations, fine, Euroclear will be reimbursed with the amount of the Russian reparations,\u201d he said. \u201cIf Russia ends up not paying reparations for whatever reason, then it\u2019s manageable as well, because Euroclear will be repaid \u2013 since the guarantees provided by the member states participating in the loan will be triggered.<\/p>\n

\u201cIn that scenario, then yes, the member states will have to pay to reimburse Euroclear, but that will be part of the broader settlement of the Ukraine-Russia conflict,\u201d he said.<\/p>\n

Von der Leyen said on Wednesday that she did not believe that the European public would be left to shoulder the burden alone, without elaborating further. She said her executive was preparing to present a legal text outlining the proposal.<\/p>\n

“To be very clear \u2013 I cannot see any scenario in which the European taxpayers alone will pay the bill,” she said. <\/p>\n

The plan also depends on the Russian assets staying frozen. As it stands, EU sanctions need to be renewed by a unanimous vote every six months<\/a>, making it dependent on the continued support of member states favouring rapprochement with Moscow such as Hungary and Slovakia.<\/p>\n

Kolyandr said that while the EU had other ways of raising funds for Ukraine, none of them were free from controversy.<\/p>\n

\u201cShort-term, Europe can use its European Union<\/a> fund, but that might face opposition from other countries, because this money was intended for infrastructure and investment projects,\u201d he said. \u201cIt can also raise debt, either as a union \u2013 which I doubt \u2013 or by nation-state. But that would be politically difficult, because in fact that means that European voters and taxpayers would be forced to pay for that.\u201d<\/p>\n

Whatever form the final proposal takes, though, Kolyandr said that the EU\u2019s struggle to agree on a common path forward risked leaving Ukraine exposed.<\/p>\n

\u201cTo put it bluntly, if they fail to resolve the issue of Russian assets, it would be a major clusterfuck,\u201d he said. \u201cBecause Ukraine needs money \u2013 both for its budget and its military operations. When the United States closed the chequebook, Europe and the IMF remained the main lenders. And the IMF<\/a> doesn\u2019t want to move ahead until it gets any clarity on how Europe is going to cough up the money.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Ukraine is facing a harsh winter, and more will likely follow. Over the next two years, the war-ravaged…\n","protected":false},"author":2,"featured_media":598780,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5174],"tags":[2000,188068,299,5187,2557,332,657],"class_list":{"0":"post-598779","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-eu","8":"tag-eu","9":"tag-euroclear","10":"tag-europe","11":"tag-european","12":"tag-european-commission","13":"tag-russia","14":"tag-ukraine"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115626175608688759","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/598779","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=598779"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/598779\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/598780"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=598779"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=598779"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=598779"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}