Brussels is accelerating with one of the few punishment measures against Moscow for the invasion of Ukraine that the European Union has not yet adopted. Community institutions have designed a regulatory framework to be able to use the benefits produced by Russian state assets frozen by EU sanctions in the reconstruction of Ukraine. The proposed regulation designed by the External Action Service and the European Commission, which is expected to be debated this Tuesday by the College of Commissioners and presented to the Member States, seeks to close another circle on the Kremlin's economy, but without directly touching its money. The idea is to use those unforeseen and extraordinary benefits that are being generated by the assets that the Russian State has immobilized in the EU due to the punishment for the invasion of Ukraine and divert them (or at least part of them) to kyiv, according to community sources familiar with the proposal. Belgium, home to one of the largest financial institutions holding Russian assets subject to sanctions in custody and exploring a similar plan, estimates that it could raise around €1.7 billion in 2024. Other, much broader estimates put this figure at around 15,000 million.
The measure, which raises significant doubts and which at the moment seeks consensus between the most reticent Member States – such as Germany, Italy and France – and the most supportive – such as the Baltic States – will require the decision of the Twenty-seven not only to be approved, but to develop. In addition, the opinion of the European Central Bank (ECB) will need to be sought, which has previously warned that initiatives involving the use of frozen Russian assets pose a potential risk to the euro and its position as a reserve currency and jeopardize the reliability of European markets.
The European proposal has been drawn up as one of the sanctions that the EU has imposed against Russia for the large-scale war in Ukraine. Hence, it is presented as a proposal by the High Representative for Foreign Policy, Josep Borrell, to the Council of the EU and is developed into a joint regulation proposal with the European Commission led by Ursula von der Leyen. The plan seeks to establish the legislative framework to limit and refer to kyiv the return that is being obtained from the frozen Russian state funds, according to the plan, which may still undergo changes.
The initiative aims to at least explore that option. And, above all, establish the principle that these funds from the extraordinary returns will be for Ukraine. The plan will consist of two phases. The first will be to identify the funds, locate where they are and put the benefits of their management into a separate account, as well as determine how they can support Ukraine. The second will be the transfer of the performance of those funds; a transfer that will only be made when there is a concrete proposal, there is a unanimous decision of the Twenty-seven and after consulting the ECB, whose opinion will not be binding, according to a source familiar with the proposal.
Member States have been talking for months about the idea of somehow taking advantage of frozen Russian assets to rebuild Ukraine and months ago they asked the European Commission and the High Representative for a proposal on how to do it. Borrell and Von der Leyen's initiative comes at a particularly delicate moment for Ukraine, when Western support risks deflating and the invaded country, which has begun its second winter of large-scale war, urgently needs financing for current expenses. and for reconstruction.
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The Brussels plan does not give estimates of how much windfall profits from Russian assets could be obtained. Spain, which holds the presidency of the EU Council this semester and has put forward a proposal for the review of the budget, has included in its initiative the obtaining of between 15,000 million and 17,000 million euros through Russian state assets, but it does not determine how you obtain that calculation. Euroclear, a clearing and settlement house that holds billions of Russian assets in custody in Belgium, has earned more than €3 billion this year on assets tied up in its securities warehouses, a profit that has skyrocketed. Furthermore, due to the increase in interest rates.
Belgium, which together with Luxembourg maintains the majority of these assets, has already proposed a measure similar to the one now proposed by Borrell and Von der Leyen, but with a special tax on extraordinary profits. Another Member State, Estonia, is exploring another option to use those Russian assets and is advancing a law to ensure the financial responsibility of people and companies that have participated and contributed to Russia's illegal actions in Ukraine and use their assets as advance payment. for the damages that the invader owes to the invaded.
However, initiatives to use Russian money tied up by sanctions raise serious doubts and several member states, which demand a very solid legal basis for any proposal, want the G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, in addition to the EU, which is part of the group), take a similar measure sooner. For now, the group of seven most developed states has shown its political support for the idea.
But doubts arise. The ECB has not been the only institution to raise doubts. Last week, the International Monetary Fund (IMF) stressed that actions affecting frozen Russian assets should be considered “carefully.” “Any confiscation, or loss or use of these assets – or the misappropriation of their benefits – may pose a risk,” the IMF says in a note, which mentions the danger to the stability of Euroclear Bank.
Meanwhile, the Twenty-Seven continue to debate how to move forward with the new package of 50 billion euros (33 billion in loans and 17 billion in subsidies) within the review of their multiannual financial framework to keep Ukraine afloat. That is, for salaries and current expenses. All without taking into account the more than 411,000 million euros that the reconstruction of Ukraine will cost, according to mid-year estimates by the World Bank, which now, when the war is on its way to reaching 700 days, have increased.
The large-scale invasion ordered by Russian President Vladimir Putin has destroyed Ukraine's past 15 years of economic progress and pushed 1.7 million Ukrainians into poverty. There are many voices claiming that, in addition to Western sanctions imposed on Russian people and companies to strangle the economy that supports the war, it is Russia that should pay for the reconstruction of Ukraine. And the idea is to start with those unexpected and extraordinary benefits that its assets tied up in the EU are producing.
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