“Revenue that no one is entitled to”

Russia’s Frozen Assets

The proposal to use the Russian Central Bank’s assets frozen in the EU, to provide additional finances for Ukraine, has been in discussion since some time. The assets amount to a total of around €210 billion, with around €190 billion deposited at Euroclear, a financial institution headquartered in Brussels, that also functions as a depository for securities. Until now, the EU has refrained from simply confiscating these assets, for example, to help pay for Ukraine’s reconstruction. On the one hand, the confiscation of Russian state assets would violate the principle of state immunity and therefore be in violation of international law. On the other hand, retaliatory measures by Moscow must be expected. German state assets or even German enterprises in Russia would be at risk. Subsequently, government agencies or private companies of third countries would no longer consider the EU a safe haven for their investments, if Brussels establishes a precedent of confiscating foreign property. Assets, for example from China, or even the Arabian Gulf countries, could be pulled out of the EU to avoid politically-induced risks – to the Union’s detriment.

“Windfall Profits”

On Wednesday, the EU proposed an alternative plan to the total confiscation of Russian state assets, which calls for confiscating only the interest income accumulated on the assets for transferring it to Ukraine. According to Euroclear, last year’s interests amounted to €4.4 billion.[1] It is estimated that, by 2027, depending on the development of interest rates, they could reach between €15 and €20 billion. Brussels is now arbitrarily declaring this interest income “windfall profits,” that may allegedly be skimmed off.[2] At yesterday’s EU summit, Chancellor Scholz alleged that this is “revenue, that no one is entitled to and therefore may be placed at the disposal of the European Union.”[3] The commission intends to leave 10 percent of the interests with Euroclear, as a financial cushion for the expected lawsuits. Euroclear may keep another 3 percent for so-called processing fees. Eighty-seven percent of the interest income should be funneled to Ukraine. The commission intends to invest nine-tenths of this sum in the “European Peace Facility,” which will serve to buy ammunition and weapons for Kiev. One-tenth is earmarked to become part of the EU budget to be invested in the development of the Ukrainian arms industry.[4]

Risks and Side Effects

Business and financial circles are warning against taking the step that the EU’s heads of states and governments widely welcomed yesterday and could officially approve, following an assessment by jurists. The European Central Bank (ECB), for example, considers it conceivable that financial institutions, particularly from China, but possibly also from other countries, may now pull out their assets from Euroclear. It is predicted that this would not only weaken the Belgian financial institution’s market clout, but in an extreme case, the institution could begin to falter. Even a chain reaction such as a sudden withdrawal of currency reserves held in euros, cannot be ruled out; this could destabilize the European financial system.[5] Even if a worst-case scenario does not emerge, that measure could “undermine market confidence in the euro.” To prevent this, it is imperative to show a “solid legal basis” for the confiscation of the interests and absolutely avoid all “impressions of an arbitrary expropriation.” However, it is hardly conceivable, why financial institutions, that have invested billions in the EU or are contemplating doing so, would be so naïve as to believe that, in the future, the EU will only take such measures against Russia and certainly not against any other nation.

Countermeasures

In addition, Russia has already announced countermeasures. Already on Wednesday, the spokesperson for Russia’s Ministry of Foreign Affairs, Maria Zakharova, called a possible confiscation of the interest income “banditry and theft.” Russia’s presidential spokesperson, Dmitry Peskov, said that “Europeans” should be “aware of the damage that such decisions can cause to their economy, their image and their reputation as reliable guarantors of the inviolability of property.”[6] Peskov indicated that Moscow will take legal action against the measures, and warned that those responsible will face “many decades” of penal prosecution. Moscow could also initiate concrete retaliatory measures. It has been suggested that Russian authorities may retaliate by confiscating the assets of Euroclear. According to reports, Euroclear has nearly €33 billion deposited in Russia.[7] It can also not be ruled out that Moscow may resort to compulsory expropriations of companies from EU countries that are still operating in Russia – which, for various companies, is still legally allowed, despite the sanctions. An escalation of the situation threatens enormous consequences.

Merely a First Step

Despite all the risks, the USA and, for example, German politicians, are insisting on expanding the hostile measures and eventually expropriating all of the Russian Central Bank’s assets. On Monday, US Secretary of State Antony Blinken joined the meeting of the EU foreign ministers via video, reportedly to “heighten the pressure on the Europeans“ to transfer all of Russia’s frozen state assets to Ukraine.[8] In early February, Katrin Göring-Eckardt a politician of the Greens, also urged that, “if the [interest, ed.] income is released, as a first step, we should also consider the assets themselves.” There are “legal issues,” she said referring to state immunity, the fundamental element of international law. “But they should be considered with the ultimate objective of releasing the assets to Ukraine.”[9] Göring-Eckardt is Vice-President of the Bundestag.

[1] Zinsgewinne für Militärhilfe? tagesschau.de 21.03.2024.

[2] Wie die EU-Kommission mit Zinserträgen der Ukraine helfen will. deutschlandfunk.de 20.03.2024.

[3] Staats- und Regierungschefs beraten über Nutzung von Zinsgewinnen von eingefrorenen russischen Vermögen. deutschlandfunk.de 21.03.2024.

[4] Jakob Mayr: EU will russisches Vermögen indirekt für Kiew nutzen. tagesschau.de 20.03.2024.

[5] Moritz Koch, Carsten Volkery: EU will russische Sondergewinne für Waffenhilfen an Kiew nutzen. handelsblatt.com 19.03.2024.

[6] Russisches Vermögen für Waffenkäufe: Russland droht EU mit strafrechtlicher Verfolgung. diepresse.com 20.03.2024.

[7] Bernd Riegert: EU: Russische Zinsen für ukrainische Waffen. dw.com 20.03.2024.

[8] Moritz Koch, Carsten Volkery: EU will russische Sondergewinne für Waffenhilfen an Kiew nutzen. handelsblatt.com 19.03.2024.

[9] „Der Moment ist jetzt“. Frankfurter Allgemeine Sonntagszeitung 04.02.2024.