Ian Proud
The European Union presses on with plans to seize Russian assets permanently
For over two years, there have been loud and repeated calls for Russia's immobilised assets in Europe - valued at around $245 billion - to be permanently seized. However, those assets had hitherto been immobilised under EU sanctions which required unanimous agreement every six months.
Not any more. Given Belgium's sturdy resistance to using $165 billion in immobilised assets held in Euroclear, the European Commission has triggered an emergency clause in the Treaty on the functioning of the European Union to bypass the principle of unanimity on sanctions policy.
On Thursday of last week European Council Ambassadors agreed by majority to freeze indefinitely immobilised Russian assets in European banks. This proposal is separate from specific lending to Ukraine to cover its financial needs, which was subject to a separate proposal.
But, in fact, the two are connected. Because the separate proposal for a so-called reparations loan makes clear that Ukraine will only have to repay the loan if its receives reparations from Russia, whereupon Russia's frozen assets will be returned.
However, Russia will self-evidently never make reparations payments to Ukraine precisely because its immobilised assets which might be used for reparations in Ukraine have already been expropriated and are unlikely to be returned.
The measure proposed by the EU uses as its legal basis the need to cover the economic risks to the EU from the ongoing war. However, the Economist has pointed this out as an example of 'dodgy' legal logic. But it's worse than that; it's in fact untrue. The money is not intended to support Europan economies, as it only represented 1% of European GDP. It will be used to back a reparations loan that is not intended for reparations, but rather to pay for Ukraine's bloated budget.
This includes $106 billion to cover Ukraine's budget deficit over the next two years and $50 billion to write off the EU contribution to the G7 Extraordinary Revenue Acceleration loan agreed in June 2024. The remainder will be pumped into Ukraine's defence industry.
So, all of Russia's money will effectively be given to Ukraine, albeit in the form of a loan underwritten by those European banks that hold Russian assets. In this fantasy, Russia's assets still exist, it's simply that EU banks have lent their equivalent value to Ukraine.
The problem Ursula von der Leyen is trying to avoid, as I have pointed out before, is the return of Russia's assets after any peace deal that leads to sanctions against Russia being lifted. In short, peace would raise the risk of the loan collateral being handed back to Russia, meaning that Europe would need to pay for it, on the basis that Ukraine won't have the means to repay the loan itself.
Let's be clear, the earlier G7 Extraordinary Revenue Acceleration loan to Ukraine agreed in 2024 had a maturity of up to 45 years. Does Europe really intend to keep Russia's assets immobilised for that period of time?
President Trump's initial 28 point peace plan suggested that Russia's immobilised assets be split three ways, between $100 billion invested in Ukraine by U.S. firms, $100 billion overseen by Europe and the remainder co-invested by the U.S. and Russia in its country. On that basis, and assuming Russia was agreeable, all of Russia's immobilised funds would be used for genuine reconstruction efforts, both inside of Ukraine and those parts which Russia has occupied. President Zelensky has spoken this week about the possible setting up of a special economic zone in the contested parts of Donetsk oblast that would be demilitarised.
As I pointed out a year ago, Russia might be willing to give up its assets for some form of de facto recognition of territory, which the Trump administration has essentially proposed. The value of its unfrozen sovereign reserves - at $425 billion - now far exceed the sum still frozen in Europe and other jurisdictions including the U.S.. So Russia might be willing to give up some assets as part of a quid pro quo on territory. And it's clear that Europe has absolutely no intention of giving the money back anyway, so why not cut a deal that works best for Russia?
But what the Europeans want to do is to have two cakes and eat them both. Get Russia to pay for Ukraine's day to day fiscal expenditures associated with war fighting and building up its defence industrial complex, even after the war ends. And get Russia to pay for Ukraine's post-war reconstruction. That is clearly delusional.
Because, and as I have already pointed out, Ukraine will still have an enormous fiscal hole to fill anyway when the fighting stop. So, if the actual plan is that Russia's immobilised assets be used as collateral for day-to-day costs, then where is the capital to fund reparations ? In short, it will cease to be available.
No, don't worry about that, European Commission officials assure us, Russia will get its assets back after it pays reparations to Ukraine. But who decides how much Russia should pay ? At the end of 2024, the UN estimated that Ukraine's total recovery and reconstruction needs amounted to $524 billion.
Russia will simply not agree to pay that sum, not least as if it did, it would find that its immobilised assets were no longer available, having been spent on Ukraine's budget. And, in any case, why would Russia agree to pay a sum of reparations that Europe adjudicates on from afar, all while the Americans have a more credible plan to use the immobilised assets?
President Trump is nudging president Ukrainian and European leaders, kicking and screaming, closer toward a peace deal that they don't want to sign up to. In the case of Zelensky, he has resisted agreement because it might bring his time in power to a juddering halt. In the case of Von der Leyen, it would mean she had to tell Member States how much they needed to stump up to pay for Ukraine. As well as being logically confused and ill-thought-through, the asset seizure idea also brings the added risk of preventing any ceasefire.
Despite this, Trump appears to have the bit between his teeth to force a peace deal through and, with Zelensky now appearing to give up on NATO membership, we appear mercifully to be nudging in tiny steps towards the end of this needless war.
Someone will still need to pay for Ukraine's budget when that happens. Russia will rightly point out that Europe has expropriated its money in the biggest bank robbery in history. And likely bury Brussels in a blizzard of litigation which makes investors in the developing world think long and hard about whether to keep their money in Europe.