G7 Plan for Russian Assets Could Threaten Financial Stability in Europe

The use of Russian assets as collateral for borrowing is ‘close to indirect seizure’, warned Lieve Mostrey, CEO of the European clearing house Euroclear, stating that the G7 plan could jeopardize financial stability in Europe.

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. Approximately $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. UK Prime Minister Rishi Sunak wrote in a column for the Sunday Times that Western countries ‘should be bolder in confiscating Russian assets’.

– We must strike harder at the Russian war economy… And we must be bolder in seizing hundreds of billions of frozen Russian assets – believes the British Prime Minister.

The EU, on the other hand, is more cautious, fearing legal consequences and potential damage to the euro. The European Commission proposed in December that only the earnings on those assets be seized and that the principal remain untouched.

In mid-February, the EU Council prepared the ground, instructing central securities depositories to separately account for extraordinary revenues accumulated due to restrictive measures against Russia. The revenue could be paid into the EU budget for the purpose of supporting Ukraine, the EU Council stated. In the next four years, Ukraine could receive between 15 to 17 billion euros, officials said.

The CEO of Euroclear warned that the Belgian ‘middle solution’, under which Russian assets could serve as collateral for borrowing, is actually a seizure ‘through the back door’.

– Using assets that do not belong to you as collateral is quite close to indirect seizure or an obligation to seize in the future, which could have exactly the same effects on the markets as direct seizure – Mostrey said in an interview with the Financial Times published in mid-February.

Both direct and indirect seizure could expose Euroclear to lawsuits, she emphasized.

– I believe that reason will prevail (…) The logic of asset confiscation… would significantly affect confidence in the Euroclear system, confidence in European capital markets, confidence in the euro as a currency – Mostrey warned.

She is more inclined towards seizing the income from the assets. This option, in her assessment, is ‘less risky’ since Euroclear does not pay interest income to clients and the profit ‘legally belongs to Euroclear’.

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 an unnamed senior official. – Euroclear manages trillions, and its bankruptcy would far exceed the EU budget. We must balance risks and profits – he added.