The weeks-long debate could yield concrete results by the end of next month. Countries such as the European Central Bank or Germany fear that this path could hurt the economy of the Eurozone
According to the World Bank, Ukraine is expected to need nearly 380 billion euros to rebuild after the war. This is what the European Union has been debating for weeks, trying to understand whether some 200 billion euros of frozen Russian central bank assets could be used to help bail out the occupied country. In February 2022.
There is continued resistance from many countries to move forward, with the idea of presenting a plan within weeks. From the legality of the process to the potential economic consequences, member states like Germany are still deciding whether it is the best option.
Portugal, which is part of the working group created by the European Commission to discuss the matter, guarantees that it supports the use of these Russian materials. In response to CNN Portugal, a government source said that “Portugal has supported, supported and participated in all decisions and preparatory work” aimed at transferring these funds to Ukraine.
“This subject is subject to many references in decisions, namely the European Council, always with the support of Portugal”, adds the executive, who hopes to present a concrete plan “by the end of next month”. Last accounts showed 25 million euros of frozen Russian assets in Portugal.
Its aim is to try to find proposals that respect the “compatibility of the materials for the reconstruction of Ukraine and the concrete use of frozen assets with the European legal frameworks and Member States”. Accurate skeptics echo in Germany, for example, fearing that with the move forward, confidence in the security of assets held by foreign governments in Europe will be called into question.
The situation “opens a can of worms,” said one German official who spoke Financial Times. Berlin understands that if the EU accepts money from Russia for this purpose, it could set a precedent for situations such as Poland’s demands for reparations to Germany because of World War II. The same official indicated that Germany’s Justice Minister Marco Buschmann understood that the proposals on the table had no legal basis.
Document received by Bloomberg The European Union has decided that it cannot legally confiscate Russian assets, which is why the possible temporary use of these assets is under study. “There is no credible legal mechanism to allow the seizure of frozen or fixed assets based solely on the fact that these assets are subject to EU control measures,” the report points out.
The Austrian foreign minister urged caution in next moves. And to Bloomberg, Alexander Schallenberg admitted that he “perfectly understands the emotions of the debate and what we’re saying we want to get our hands on these assets.” But he also left a warning. “We are states of law. We protect an international order based on rules. So, everything we do in this area must be completely watertight. It can be challenged, and it can be challenged in European or American courts. If any of these. Proceedings raised by a judge, it is a would be a diplomatic and economic disaster”.
A concern not just legal. According to Financial Times The European Central Bank (ECB) also has some reservations, one of the best examples coming from Brazil. The South American country has many reserves in euros, but may downplay the use of frozen funds in other ways, as sanctions could come from Brussels to Brasilia over the destruction of the Amazon rainforest. The ECB fears that it could devalue the euro in a particularly negative way, which would have specific implications for single currency countries.
“The implications could be substantial: it could lead to a diversification of reserves outside the euro domain, increasing funding costs for European loans,” said an ECB note cited by the Financial Times.
On the other side of the barrier where Portugal appears to be, in February 2022, when the G7 decided to freeze the assets of Russia’s central bank, it was argued that the barrier had already been broken without causing a negative reaction.
For now, one thing seems certain: “Ukraine will have to pay a big bill for its reconstruction and a big part of that bill will fall on the EU”. These are the words of the Director General of Sweden’s National Trade Council, who leads a working group made up of 27 and which continues to analyze the possibilities of using frozen products.
“It is clear that we are doing something unique. The European Union has never taken the level of approach we are discussing,” Anders Anlitt said. The official explained that the idea could provide Ukraine with three billion euros a year in the long term.
Another hypothesis on the table is to monetize the frozen assets, using a profit margin to help Ukraine, while potentially repatriating money to Russia in the future.
How measurement works
About 200 billion of the roughly 550 billion euro of assets held by Russia’s central bank in the EU have been frozen. Almost all of the money is spread across accounts at Euroclear, a Belgium-based financial services firm that specializes in saving and investing these types of funds.
The group said its trade balance in April indicated that funds allocated there had more than doubled, largely due to payments related to Russian assets. According to Bloomberg, in the first quarter of this year alone, 750 million euros were generated as a result of frozen assets.
Normally these payments would have been made to Russian bank accounts, but sanctions enacted by the European Union meant that the money remained in the accounts of the money-creating company as a result of the sanctions. In practice, instead of returning the money, Euroclear keeps what it already has and the proceeds from it.
The EU Commission’s plan, which includes Portugal, includes the creation of a special tax to collect windfall interest income from this situation, and is part of a budget the EU will establish to help. Ukraine.
Small countries agree. Latvia’s prime minister, for example, said Russian assets were “easy fruit to pick.” “We need to find a legal basis to mobilize these assets to pay for the damage Russia is causing in Ukraine,” said Artur’s Kriszjanis Karis.
However, the highest European bodies, backed by countries such as Germany, view the issue with another caution. “People who have money might think … ‘What if one day I’m on the list,'” a European representative told CNN International, speaking on condition of anonymity because of the private nature of the negotiations.