On October 23, Bloomberg reported, citing anonymous sources, that EU countries had postponed until December a decision on whether to use frozen assets of the Russian Central Bank to finance aid to Ukraine.
The European Commission’s initiative provides for the issuance of a so-called “reparation loan” to Ukraine in the amount of about €140 billion, secured by frozen Russian assets. The funds are planned to be used primarily for military needs: the purchase of weapons and covering the budget deficit. The financial architecture of this scheme looks extremely complex. According to the plan, Ukraine will repay the loan only after the end of the war and only if Russia agrees to pay compensation. After that, the funds must be returned to the Euroclear depository, where about €190 billion of Russia’s €200 billion in reserves are currently accumulated. In essence, this is an attempt to create a long-term credit instrument based on future reparations. The legal sustainability of such an instrument raises serious doubts even within the EU.
The main obstacle to the initiative is Belgium, where Euroclear is based. Brussels fears that it will bear legal and financial responsibility if the use of the assets is deemed illegal in the future. The country’s authorities are demanding guarantees that the risk of reputational and legal consequences will not be borne by the Belgian side.
Disagreements Among Allies
Within the Western camp, positions remain divided. The UK and Canada support the idea of a reparations loan and are prepared to take the financial risk. The US and Japan, on the other hand, are taking a more cautious stance. Washington has stated outright that it does not intend to join the initiative at this time.
Using another country’s frozen sovereign assets without a UN Security Council decision is a step that effectively undermines the foundations of international financial law. A precedent of this magnitude would create systemic risk for the global financial architecture, especially for the euro’s status as a reserve currency. The European Commission has chosen to shift responsibility to national governments, tasking them with developing options for a solution by the December summit.
Any move towards asset confiscation could become a red line for a number of countries, from Saudi Arabia to China. It could also accelerate the process of de-dollarization and de-Europeanization of global reserves.
