At a time when the Ukrainian army is waging an exhausting battle against Russian forces, with shortages of military equipment tipping the scales – for the time being – in favor of Moscow, those voices are intensifying that favor the use of confiscated Russian assets as a solution. finding resources both for equipping the Ukrainian troops and for the post-war reconstruction of the country.

Up to $300 billion in Russian assets, frozen by the West since the invasion of Ukraine, are accumulating profits and interest income, according to an analysis in the international press. Now, Europe and the United States are considering how to use those gains to help the Ukrainian military.

The debate for months has focused mostly on whether it would be legal or even wise to seize the frozen assets altogether. While the United States and Britain are closer to this scenario, significant objections are being raised by countries such as France, Germany, Indonesia, Italy, Japan and Saudi Arabia, as well as by officials such as Christine Lagarde, head of the European Central Bank.

They argue confiscation would set a bad precedent, violate sovereignty and could lead to legal challenges, financial instability and retaliatory seizures of Western assets abroad.

So the seizure idea seems dead for now. However, proposals to seize and use the profits made from these Russian assets, the idea of ​​confiscating the interest on accumulated cash from the sanctions, says Euroclear, a financial services firm, is gaining significant ground. Both Europeans and Americans believe that these profits could be used without raising the same legal challenges or risks to the global financial system.

However, even within the group of allies who favor the idea of ​​interest sequestration, there are disagreements about how to use the funds. The Europeans would like to transfer them to Ukraine annually or biennially. The Americans want to find a way for Ukraine to get more money quickly.

The debate over which approach to use is intensifying ahead of the Group of 7 summit in Italy next month, during which an agreement on the issue may be reached.

The European Plan

European Union finance ministers are expected to approve a controversial and long-running plan to use most of the interest earned on seized Russian assets in Europe to help equip Ukraine and force Russia to pay for its reconstruction. country.

After months of talks, EU states approved the political deal in March and last week agreed in principle that 90 percent of the profits would be used to buy arms for Ukraine through the European Peace Mechanism, an EU structure for financing military aid and its own military missions.

The remaining 10 percent was decided to be used for reconstruction, in order to satisfy countries such as Ireland, Austria, Cyprus and Malta, which are militarily neutral.
The European proposal targets only the profits of Belgium’s central securities depository Euroclear, where around 190 billion euros of Russian central bank assets are held.

The European Commission expects Euroclear to deliver around €3 billion a year to be transferred to the bloc’s coffers every two years, with the first payment due in July. That’s roughly equivalent to what Britain is promising to give Ukraine next year, but pales in comparison to the $61 billion the United States recently approved.

Euroclear has made about €5 billion in net profits from Russian assets since the hack. Profits made up to February this year will be withheld by Euroclear in case of legal claims, but the European Commission has ruled that Moscow has no legal right to the profits.

The American design

With Ukraine losing ground to Russia and in need of funds to buy more ammunition and pay salaries, the Americans argue that more money must be funneled into Ukraine as soon as possible.

The United States owns only a small amount of Russian assets, estimated at about $5 billion. But the Americans are proposing giving Ukraine about $60 billion upfront, then using profits from Russian assets held in Europe to pay off the debt over time.

Such a step, they argue, would send an important message of Western commitment to both Ukraine and Russia. Their plan does not rule out the European one and could be settled before the November elections.

Daleep Singh, a US national security adviser and key architect of Western sanctions on Russia, outlined the idea last month in Kiev.

The Biden administration wanted to use interest income from seized Russian assets in order to “maximize the impact of that income, both current and future, to benefit Ukraine today,” he said.

The conflict

The US plan has run into objections in Brussels, which say it undermines European control over assets and poses greater risks.

If interest rates fall, the Europeans argue, the money earned on Russian assets may not be enough to repay the debt. So who would be responsible for covering the deficit, the United States or the European Union?

Second, if the war ends by negotiation before the bond matures, what happens if sanctions on Russia are lifted and Russian assets are returned? Or what if they are eventually confiscated to pay for the reconstruction of Ukraine? In each scenario, who will be responsible?

European officials suggest the United States should be the guarantor, while the Americans want the Europeans to take responsibility, analysts say. Some officials are suggesting that the Group of 7 take responsibility, even issuing a bond, but some countries may raise legal objections to that plan.

Some Europeans suggest that the European Commission should issue the bond, since the assets are in Europe and therefore have a greater say in how the money is spent — mostly on European arms manufacturers or companies, for example, than on American. And so Europe should not worry if Donald Trump is elected or Congress objects.

Seizure;

The argument for total confiscation continues, even if it remains unlikely. Seizing the money would be one way to force Russia to pay for the reconstruction of Ukraine, which is estimated to cost at least $500 billion, if not twice that.

Nigel Gould-Davies, a former British diplomat now at the International Institute for Strategic Studies, a think tank, says Western fears of economic instability are unrealistic.

“The freezing of assets was a much more decisive step than their confiscation and did not cause a disturbance in the market,” he said.