Seizure of Russian Assets Could Shake EU Financial Stability

The EU is unlikely to seize frozen Russian assets, European officials stated, emphasizing that such a decision could undermine the financial stability of the Union.

Due to the Russian invasion of Ukraine, the EU, the US, Japan, and Canada have banned transactions with the Russian central bank and the Ministry of Finance and frozen about $300 billion of Russian assets.

About $200 billion is blocked in accounts in Europe, mainly in the Belgian clearing house Euroclear.

US and UK officials propose that the frozen assets be seized and used for the reconstruction of war-torn Ukraine and hope that G7 leaders will accept this proposal at a meeting at the end of February, Reuters learned in late December from three sources.

European officials dismissed this possibility in a conversation with Reuters, arguing that it is legally too risky.

– The principal of Russian assets will not be confiscated. EU member states do not agree on this issue – said a senior official with insight into the discussions, requesting anonymity.

In an interview with Reuters, Luxembourg’s Foreign Minister Xavier Bettel said he is ‘very cautious’ when it comes to seizure.

– Imagine we make a political decision to give those billions to Ukraine. And in six months we get a court ruling that we cannot give them (that money). Who will pay for that? – explains Bettel.

Impact on the Euro

In addition to the legality of such an unprecedented decision, European officials are also concerned about the possible consequences for the euro. Investors could pull out of euro-denominated assets for fear that their money could also be seized one day.

Belgian Finance Minister Vincent van Peteghem, whose country holds the EU presidency until July, is very cautious about the possibility of seizure.

– We must be very prudent regarding such a proposal. I think it is important that we can only discuss a proposal that is legally secure and that we must avoid potential impacts on financial stability – said Van Peteghem to reporters on Tuesday.

Belgian Euroclear has ‘significant’ assets in Russia, officials said. Moscow could seize them, which would pose a risk to the financial stability of that clearing house with major consequences.

Russia has already warned that it could retaliate by seizing European, American, and other countries’ assets that decide to take such a step.

– The EU cannot save Euroclear – said another senior official. – Euroclear manages trillions, and its bankruptcy would far exceed the EU budget. We must balance risks and benefits – he added.

Instead of confiscating Russian assets, EU governments are likely to support the European Commission’s proposal from December to seize only the earnings from those assets and leave the principal untouched.

This could, it is estimated, generate €15 to €17 billion over the next four years, which could be transferred to Ukraine, officials said.