In an extremely cautious step, Brussels is embarking on a complicated path: using Russian money to provide financial support to Ukraine. It would be a very welcome bonus for the country that is financially devastated by the war – especially now that money flows from Europe and America are faltering. But whether the plan can actually be implemented remains uncertain.
On Tuesday, the European Commission presented plans to make up to 15 billion euros in profits in the coming years from the Russian central bank’s frozen assets at institutions in the EU. Ideas for this have been floating around for more than a year and a half, but until now they were seen as legally shaky and financially risky.
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Now Brussels is coming up with a proposal, not least because support for Ukraine is under great political pressure in both the EU and the United States. Next week, a new European aid package of 50 billion euros is in danger of being blocked by Hungarian Prime Minister Viktor Orbán. Support for aid to Ukraine is also dwindling in the American Congress, and so pressure from Washington has also grown in recent months to use the many billions in Russian assets stored in the EU.
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200 billion euros frozen
After all, it involves a lot of money: in total, the EU has frozen more than 200 billion euros in assets of the Russian central bank – a sanction imposed on February 28, 2022. Simply confiscating that money goes too far for almost everyone and faces major legal objections. But while the funds are frozen, they accrue interest. And not insignificant: in October, the Belgium-based securities manager created Euroclear announced a profit of 3 billion euros this year alone on the frozen Russian assets in Euroclear’s custody.
Brussels has its sights set on that profit, but scraping it off is by no means easy. The European Central Bank previously expressed concerns about the risks of such a step for the stability of the financial markets and the role of the euro as a reliable currency. It explains why member states such as Germany, but also the home country of Euroclear Belgium, previously had great hesitations about plans to confiscate profits.
The Commission is therefore now proceeding with extreme caution. Initially, she only proposes that the securities managers where the assets are located, for example Euroclear, place the proceeds in a separate account. This will first make it clear exactly how much money is involved. In addition, the managers are obliged to retain that proceeds for the time being and therefore not to distribute them to shareholders, for example.
The Commission is not going further yet, with the skeptical Member States in mind. But in the future she may want to move to step two: channeling the set aside money to the EU budget, so that it can then be transferred to Ukraine as financial support. “We are taking it step by step,” an EU official emphasized on Tuesday. “But we think there are good reasons to use these revenues for the reconstruction of Ukraine. That remains the long-term goal.”
Veto
Whether that goal will ever be achieved remains uncertain even after this Tuesday. Because no matter how small this first step is, not all member states are still convinced that the EU should take this path at all. According to the Commission, the profits do not legally belong to Russia because the assets have been ‘immobilized’, and the securities managers have no legitimate claim to them either because the profits are the result of sanctions.
It is still unclear whether this can convince all member states, although they must agree to the plan unanimously. This means that Hungary, a notorious obstructionist, also has a veto. Only after the proposal has been adopted can the profits be set aside. All profits made up to that point are therefore outside the plan anyway.
Private assets of Russians frozen in the EU are also excluded from the plan. According to EU officials, tackling profits from those funds also costs more than it could possibly yield.
If the EU were indeed able to transfer the profits to Ukraine, internal calculations estimate this could amount to 3 billion euros per year – although this amount depends on interest rates. In any case, it could be a significant contribution at a time when it is becoming increasingly difficult for politicians to get new financial support approved.
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