Divisions over whether Ukraine can lawfully access an additional €30bn (£26bn) loan from €270bn in seized Russian state assets are expected to surface at a meeting of G7 finance ministers this week in Stresa, northern Italy.
The US has been rallying support for the plan, aiming to allocate the funds for Ukraine’s reconstruction or to purchase much-needed weaponry. However, the debate surrounding how to utilize the frozen Russian state assets has remained deadlocked for over a year. Advocates of complete asset seizure have struggled to garner support within the G7 group, with concerns raised by central bank governors.
Christine Lagarde, the President of the European Central Bank, has raised legal and economic objections to full asset seizure. She argues that seizing the assets could disrupt the international legal order and destabilize the financial system. Lagarde’s concerns are echoed by critics who fear that such actions could lead countries with significant surpluses, such as China and Gulf states, to avoid western reserve currencies for fear of asset seizure.
In response to these objections, the US and the UK propose an alternative approach: leveraging the frozen assets as collateral to provide Ukraine with a substantial loan or bond worth approximately €30bn. This loan would be repaid from the annual profits generated by the frozen Russian assets. The proposal aims to avoid the outright seizure of assets while still providing significant financial support to Ukraine.
The plan has faced criticism, with opponents arguing that using the assets as collateral effectively amounts to confiscation. However, proponents insist that legal scholarship supports the view that the assets can be seized under the doctrine of state countermeasures. Additionally, they argue that the potential damage to confidence in the euro has already been mitigated by the freezing of the assets in 2022.
Belgium, home to the Brussels-based securities depository Euroclear, holds the largest share of Russia’s frozen assets within the G7, estimated at €270bn. The assets in Belgium have already generated significant investment income, with €5bn expected for 2022-23. In consultation with the EU, Belgium has agreed to allocate a portion of this profit to a joint G7 fund for Ukraine, demonstrating a commitment to supporting Ukraine’s reconstruction efforts.
Despite the ongoing debate, the urgency of the situation in Ukraine remains paramount. Olena Halushka, the head of the International Centre for Ukrainian Victory, warns of dire consequences if Ukraine is denied access to the assets and loses the war. She emphasizes that the economic and security repercussions for Europe would far outweigh any reputational risks associated with using Russian assets.
In conclusion, the proposal to utilize frozen Russian assets as collateral for a loan to Ukraine presents a potential solution to the ongoing deadlock. While concerns about legality and economic stability persist, proponents argue that the benefits of providing substantial financial support to Ukraine outweigh the risks. The outcome of the debate at the G7 finance ministers’ meeting will likely have significant implications for Ukraine’s future and the broader geopolitical landscape
