Sweden, the Netherlands, Spain, and Poland, supported by the Baltic states, are once again actively seeking to use the frozen funds of the Russian central bank to support Ukraine.
War expenses for Ukraine continue to grow, so using these funds could provide Kyiv with additional financial resources. However, the initiative has again faced resistance from Belgium.
About 210 billion euros of Russian central bank funds are frozen in EU countries in total. The majority of these – about 185 billion euros – are held in Belgium, in the company “Euroclear” based in Brussels.
Belgium fears that using these funds for Ukraine would cause the country significant legal and financial risks. Meanwhile, “Euroclear” is already facing a lawsuit from the Russian central bank.
Last year, Belgium actively opposed the European Commission’s plan to use 210 billion euros of Russian assets as the basis for an interest-free loan to Ukraine. Belgium’s position has not changed so far – the country states it will continue to oppose such a decision.
“The reasons why we oppose it have not magically disappeared,” said Belgium’s Foreign Minister Maxime Prévot this week.
According to him, using Russian assets in a way that would essentially amount to their confiscation would pose a “very high risk.”
Read the “Euronews” publication here.
What if Belgium were no longer responsible for this asset?
In European capitals, a proposal is gaining more attention to transfer the Russian central bank funds held by “Euroclear” to a new institution that would belong to and be controlled by the European Union.
Supporters of such a decision believe that this would allow “Euroclear” to be removed from this dispute and simultaneously reduce the risk borne by Belgium.
Ukraine’s Finance Minister Serhiy Marchenko views this proposal favorably.
“The proposal we would like to discuss is the possibility of transferring the management of frozen assets from Belgium to the European Union,” Marchenko told “Euronews.”
According to him, this would help solve the problem and reduce the risks associated with these assets.
Marchenko stated that in such a case, there would be no need for a complex system of national guarantees and compensation mechanisms, which the European Commission had proposed to protect Belgium from possible Russian retaliatory actions.
“It would be a joint responsibility of the European Union. All 27 countries would sign one agreement. It would be a completely different situation,” said the minister.
The European Commission is aware of this proposal but does not want to raise the issue again yet on how to obtain more funds for Ukraine. The Commission is waiting to see if member states would agree to such a decision. At the same time, it emphasizes that it does not rule out the possibility of using frozen Russian state funds to support Ukraine.
Understand instantly
“He already knows”: analyst named why Putin is angry
China counts the billions gifted by Russia: why do they get so much?
Volodymyr Zelensky: before the US envoys’ visit, Russia struck Kyiv airports
One asset manager for the entire EU
However, this idea is not new. Over the past few months, three experts – Reuters columnist Hugo Dixon, honorary professor at the University of Edinburgh Law School Lee Buchheit, and vice president of investment firm PGIM Daleep Singh, who previously worked in the Joe Biden administration – have been working on the project “The Russian Transfer.”
They propose using the emergency mechanisms provided in Article 122 of the EU treaties to transfer Russian central bank funds held by “Euroclear” and private banks to an EU-owned institution.
They base this decision on arguments of public security and financial stability.
Article 122, which requires a qualified majority vote of member states, has already been used to freeze Russian funds indefinitely.
The authors of the proposal state that the new institution would not be a regular commercial company, so it would not need to be located in a specific EU country that Moscow could pressure or make legal claims against.
Belgium would be given a guarantee of low risk that it could be awarded damages due to the asset transfer. Such protection would be enshrined in EU legislation.
Meanwhile, the Russian central bank would formally remain the owner of these funds. Russia could only reclaim them after paying war reparations to Ukraine.
Dixon, Buchheit, and Singh also point to a historical precedent. In March 2003, shortly after the US invasion of Iraq, the White House ordered 1.7 billion US dollars of Iraqi state funds to be transferred to a special account at the New York Federal Reserve.
“If the EU uses 210 billion euros worth of Russian funds to support Ukraine, Putin will know that Ukraine cannot lose simply because it ran out of money. Then he may decide that the best solution is to make peace,” the experts told “Euronews” journalists.
Another option – a separate financial structure
The head of the European Policy Centre, Karel Lannoo, proposes another option – to create a special purpose vehicle (SPV).
Most of the Russian funds would be held there, but only the additional income generated from these assets – about 4 billion euros per year – would be used.
This approximately 4 billion euros annual income could be used as a guarantee for the EU to borrow money. In other words, the EU could borrow a much larger amount and immediately allocate it to Ukraine, and the loan would later be repaid from this income.
Most importantly, the principal of the Russian assets worth 210 billion euros would remain untouched in this case.
According to Lannoo’s proposed model, the EU could borrow money for Ukraine, and this loan would be guaranteed by the European Stability Mechanism (ESM). Established in 2012, the ESM is designed to ensure financial stability in the eurozone. It can provide loans up to 500 billion euros.
“Member states take too long to approve national guarantees. It’s better to use what we already have and ensure as little friction as possible,” said the expert.
Interestingly, the SPV model was included by the European Commission last year in a document of possible solutions presented to member states. However, it warned that the financing cost of such a structure would be higher than traditional joint borrowing.
Risk to the entire European financial system
Supporters of this idea are convinced that changing the institution that administers Russian funds could reduce Belgium’s concerns, resolve the political deadlock, and provide the EU with significant financial resources to support Ukraine.
Belgian officials have already evaluated this unofficially discussed proposal. They acknowledge that such a decision could remove some of the country’s long-term objections, as the strategically important financial infrastructure company “Euroclear” would no longer be directly at the center of the dispute.
However, the new EU institution would face other risks.
One of the reasons the plan failed at the last minute last year was the fear that foreign states and investors would view such a move as confiscation of state assets.
This could encourage investors and central banks from other countries to move their assets from Europe to other jurisdictions. Such a reaction could cause a serious reputational crisis for the entire eurozone.
This risk was one of the main arguments of the European Central Bank during last year’s tense negotiations.
European Central Bank (ECB) head Christine Lagarde privately urged EU leaders to find ways to use frozen Russian funds together with other Western countries. According to her, this would avoid a situation where eurozone countries would bear all the risk of such a decision.
Later, the ECB refused to provide emergency liquidity for guarantees related to the planned reparations loan to Ukraine.
The ECB, “Euroclear,” and some EU member states still cautiously assess any high-risk decision that could encourage investors to move capital out of Europe, cause financial instability, and weaken the euro – the world’s second most important currency.
This is especially relevant at a time when global financial markets are already facing major shocks.
It is still unclear whether transferring the administration of Russian assets to another institution would actually help convince skeptics and resolve the long-standing political deadlock.
