West freezes up to $300 billion in Russian assets since World War II Invasion of Ukraine, profits and interest income accumulate day by day. Now, Europe and the United States are considering how to use these gains to aid Ukrainian forces as they fight an uphill battle against Russian forces.
Debate has raged for months over whether it is legal or even advisable to seize frozen assets outright. While the United States and Britain favor confiscation, countries including France, Germany, Indonesia, Italy, Japan and Saudi Arabia, as well as officials such as European Central Bank President Christine Lagarde, strongly oppose it.
They believe confiscation would set a bad precedent, violation sovereignty, and could lead to legal challenges, financial instability and retaliatory seizures of Western overseas assets.
So the idea of confiscation appears to be dead for now. But it is proposed to seize and use the profits earned on these Russian assets – the interest on the cash accumulated under sanctions, European Bank for Settlements says, a financial services company—is making considerable progress. Europeans and Americans agree that the use of these profits does not pose the same legal challenges or risks to the global financial system.
But they have competing ideas about how to use the funds. The Europeans want to move them to Ukraine every year or two. Americans want to find a way to get more money to Ukraine faster.
Debate over which approach to adopt is intensifying ahead of next month’s G7 summit in Italy, where a deal is expected to be reached. Here’s a closer look at these plans.
european plan
European Union finance ministers on Tuesday are expected to approve a controversial and long-gestating plan to use much of the interest earned on Russia’s frozen assets in Europe to help arm Ukraine and have Russia pay for the country’s reconstruction.
After months of negotiations, EU countries March approval policyagreed in principle last week that they are willing to use 90% of profits to buy weapons for Ukraine through the European Peace Fund, the EU’s structure that funds military aid and its own military missions.
The remaining 10% will be used for reconstruction and non-lethal procurement to meet the needs of military neutral countries such as Ireland, Austria, Cyprus and Malta.
The European proposal targets only the profits of Belgium’s central securities depository Euroclear, which holds about 190 billion euros in Russian central bank assets.
The European Commission expects Euroclear to transfer around €3 billion annually into EU funds every six months, with the first tranche expected in July. This is roughly equivalent to the aid the UK has pledged to provide to Ukraine next year, but is still small compared with the aid the UK has pledged to Ukraine. $61 billion Recently authorized by the United States.
Since the invasion, Euroclear has made about 5 billion euros in net profits from Russian assets. Profits made before February this year will be retained by Euroclear for legal claims, but the European Commission determined that Moscow had no legal rights to the profits.
American plan
Ukraine loses to Russia and needs funds to buy more ammo And to pay wages, the Americans thought it best to send more money to Ukraine as quickly as possible.
The United States holds only a small amount of Russian assets; It is estimated that in About $5 billion. But the United States proposes to provide Ukraine with about $60 billion first and then use profits from Russian assets held in Europe to gradually repay the debt.
They believe this move will send an important signal of the West’s commitment to Ukraine and Russia. Their plan does not exclude the European plan, but would follow it and then potentially replace it. It could be scheduled before the November election.
Daleep Singh, a U.S. security adviser and a key architect of Western sanctions against Russia, said the idea last month in Kyiv.
Biden administration hopes to tap interest income from frozen Russian assets to “Maximizing the impact of these revenuesBoth now and in the future, it is for the benefit of Ukraine today. “
“Conceptually it would be possible to transfer 10 or 30 years’ worth of profits, rather than just transferring annual profits in reserves,” he said. “The present value of those profits adds up to a very large number.”
Mujtaba Rahman, managing director of Europe at Eurasia Group, who has discussed the issue extensively, said the advantage of the US plan was that it was a “future-proof” format.
This should avoid the recent heavy politicization in Congress that delayed approval of aid to Ukraine. Lachman said this would be “ahead of a possible Trump presidency and Congress.”
argument
The U.S. plan faces opposition from Brussels, which says it undermines European control of assets and creates greater risks.
Europeans believe that if interest rates fall, the money earned from Russian assets may not be enough to repay debts. So who will be responsible for filling the gap, the United States or the European Union?
Second, if the war is negotiated to end before the bonds mature, what happens if sanctions against Russia are lifted and Russian assets are returned? Or what if they were eventually confiscated to pay for Ukraine’s reconstruction? In either case, who is responsible?
Rahman said European officials suggested the United States should act as guarantor, while the Americans wanted Europeans to take responsibility. Some officials have suggested the G7 take responsibility or even issue bonds, but some countries may legally oppose the plan.
Some Europeans have suggested that the European Commission should issue the bonds because the assets are in Europe and therefore have more say in how the funds are used — for example, primarily to European arms manufacturers or companies rather than U.S. arms manufacturing business or company. Nor does Europe have to worry about Donald J. Trump or Congressional reluctance.
Confiscated?
Debate continues over outright confiscation, although this remains unlikely. Confiscating the money would be a way to force Russia to pay expensive fees. Ukraine reconstructionIt is estimated to cost at least $500 billion, if not twice that, as it is unlikely to do so voluntarily.
Nigel Gould-Davies, a former British diplomat now at the International Institute for Strategic Studies, said Western concerns about financial instability were unrealistic.
“Freezing assets is a more decisive step than seizing assets and will not cause market turmoil,” he said. “If the issuing countries of the major currencies (dollars, euros, pounds and yen) get their act together, there will be nowhere else to safely hold large amounts of money.”
in a recent papersLike providing weapons to Ukraine, Gould-Davis said, “Excessive fear of adverse consequences is the latest form of chronic self-deterrence in economic affairs.”
This hesitation is particularly foolish, he believes, because the economy is “the West’s strongest area of natural power, and Russia cannot retaliate effectively against it.”
Martina Steeves Gridnev Reporting from Brussels.
