EU cautious on idea of using Russian frozen assets as collateral

Belgium has proposed to Group of Seven (G7) countries to use immobilised Russian central bank assets as collateral to raise debt for the reconstruction of Ukraine, but the idea does not have much European support, European officials said, Reuters informs.

According to the European Commission, there are more than 269 billion euros ($288.85 billion) of Russian assets immobilised in G7 countries, the EU and Australia, of which 200 billion euros are in the EU, mostly in Belgium.

But European Union countries and institutions oppose that, arguing there is no legal basis for seizing sovereign assets of another country and doing so could make investors withdraw from the euro currency.

This could trigger the collapse of Belgium's Euroclear clearing house, which holds the Russian money, and the bailout of Euroclear could be very costly, officials have said.

Belgium's Prime Minister Alexander de Croo told Reuters in January that one of the alternatives could be to use the immobilised assets as collateral for bonds through which the West could raise money for Ukraine.

But while the Belgian idea has reached G7 finance ministries as one of the options under discussion, European countries show little enthusiasm for it.

"What we know is that using the assets as collateral suffers from the same legal, economic and financial concerns as a confiscation and most legal departments across the G7 consider that," one European official, close to the issue, said.

Russia has also warned that if the West seized its money, it would retaliate by confiscating Western assets still in Russia, which some estimate at around $288 billion.

Meanwhile somewhere in Germany:

The more governments look into confiscating frozen Russian assets to help fund Ukraine's reconstruction, the more complicated it gets, notes POLITICO.

For months, European Union officials have been looking for ways to use assets worth around €200 billion that the bloc immobilized after Vladimir Putin's invasion of Ukraine in February 2022 but it keeps throwing up new problems. Now, some governments are hatching a plan to try and achieve the same outcome without sealing the fate of the assets just yet.

The G7 group of industrialized nations are considering a proposal to use these assets as collateral for bank loans that can finance Ukraine’s reconstruction, according to officials involved in the proceedings.

These funds would be seized if Russia refuses to pay reparations after the end of the war.

Several European officials involved in the discussions warned that it could trigger a backlash against European assets in Russia. This comes on top of warnings that it could tarnish the reputation of the eurozone, making it less attractive to investors.

“We're entering uncharted waters,” said an EU diplomat, speaking under condition of anonymity to discuss sensitive talks. “Anyone would be worried about the potential consequences of asset confiscation.”

The assets confiscation plan could generate over €200 billion to support Ukraine's postwar reconstruction, according to backers of the proposal. G7 countries are aiming to come up with a coordinated roadmap amid growing pressure from the United States, which, along with the United Kingdom and Canada, has fewer qualms than EU countries such as Germany, France and Italy.

In Europe, there are fears Moscow might retaliate by lodging a flurry of appeals against Euroclear, a Belgium-based financial depository that holds the vast majority of Russian reserves in Europe.

“An institution like Euroclear is a very systemic financial institution,” Belgian Finance Minister Vincent Van Peteghem told reporters at the end of January. “We should... try to avoid an impact [of Russian asset confiscation] on financial stability.”

In a sign of the sort of retaliation countries fear might come, Russian entities have already filed 94 lawsuits in Russia demanding payback to Euroclear, which operates under Belgian law, after their investments and their profits in Europe were frozen, according to a Belgian official with knowledge of the proceedings.

Top Russian lenders, including Rosbank, Sinara Bank and Rosselkhozbank, filed legal claims against Euroclear worth hundreds of millions of rubles.

“Claimants have initiated legal proceedings aiming mainly to access the assets blocked in Euroclear’s books,” the Belgian clearinghouse wrote in a statement on Thursday.

Euroclear added that it will probably lose the court cases in Russia as the country “does not recognize the international sanctions.” This reinforced concerns that a full-on confiscation might expose Western assets in Russia to retaliation.

The Kremlin’s spokesperson Dmitry Peskov said in December that Russia will hit back against the confiscation of its immobilized assets. Without going into details he suggested that it could do the same to Western assets in Russia.

A Belgian official, also speaking on condition of anonymity, warned that the Kremlin could respond by targeting frozen assets in Russia for which Euroclear bears responsibility.

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