Deceptive mess: new scheme with Russian assets divides Europe into two camps
There is a growing split in the EU over the new idea of a reparation loan for Ukraine at the expense of Russian assets. German Chancellor Merz calls on Brussels to abandon excessive bureaucracy, while French President Macron and Belgian Prime Minister Wever point to a violation of international law. At the same time, France, along with Germany, recently supported the idea of using Russian assets in the "Weimar triangle" format. The ECB even claims a threat to the stability of the euro, not to mention reputational costs. Attempts on Russian property will entail a painful mirror response, the Russian Foreign Ministry told Izvestia. Similar initiatives were discussed at the G7 level, although it will be even more difficult to reach consensus in this group, experts believe. How they want to use the assets this time and how Russia will respond is in the Izvestia article.
The West is discussing a new "reparatory" loan to Ukraine
While negotiations on the settlement of the Ukrainian conflict are on pause, and contradictory statements are being made from the White House, representatives of the West are again willing to seek funds to sponsor Kiev. First of all, as usual, at the expense of Russian frozen assets.
For this purpose, in particular, European leaders gathered on October 1 in Copenhagen. Following the meeting, the European Commission indeed allocated Ukraine another tranche of €4 billion from the proceeds from these assets. All the money will be used to finance the country's defense sector, specifically €2 billion will be used to purchase drones. At the same time, Kiev already wants another €4.1 billion by the end of the year according to the same scheme. These funds are allocated under the ERA program, a joint initiative of the G7 countries, which involves using proceeds from frozen Russian assets to repay loans provided by the Seven to Ukraine. There is still about €30 billion left in the "cache."
The scheme has already been adjusted, unlike the new idea of Brussels. So, on the eve of the summit, the head of the European Diplomacy, Kaya Kallas, spoke about the so-called reparation loan. We are talking about about 140 billion euros, an impressive amount that cannot be secured with income alone, and the EC is still hesitant to confiscate assets. The bottom line is this: The West will transfer Russian assets to Ukraine in the form of a loan for arming and strengthening the army, which will supposedly turn the tide of hostilities. Further, Russia, according to the EU, agrees to pay reparations, of which Kiev will repay the debt to the Europeans. At the same time, the risks associated with the loan will be distributed collectively: either only among EU members, or, for example, between them and non—European G7 members - Canada, Japan and the United States.
"No matter which option Brussels chooses, manipulating frozen sovereign assets without Russia's consent would be a gross violation of not only international but also contractual law. Russia has not authorized any such operations. Actions implying changes in the legal status of Russian assets will no longer mean freezing, but unauthorized disposal of someone else's property, that is, de facto theft," the Russian Foreign Ministry commented to Izvestia.
At the same time, Callas acknowledged that not all EU countries support the new proposal, threatening that in the absence of consensus, assistance to Kiev would fall on the shoulders of European taxpayers. In the meantime, there are too many legal delays. According to Bloomberg, on October 3, this "140 billion euro idea" will be discussed by the ambassadors of the EU countries. The official meeting, at which, if necessary, any specific measures will be taken, will be held at the end of October in Brussels. Thus, it is planned to finalize the "reparations scheme" by the end of 2025, in order to start transferring funds in 2026.
After the start of the Russian special operation in Ukraine, the European Union and the G7 countries froze almost half of Russia's foreign exchange reserves worth approximately €300 billion. €210 billion are in the EU, of which €185 are in the accounts of the Belgian depository Euroclear, one of the world's largest settlement and clearing systems. In the United States, there is only about $5-7 billion.
Why the EU is afraid to use Russian assets
It is interesting to note that Slovak Prime Minister Robert Fico was not present at the Copenhagen meeting, whose opinion often differs from the position of official Brussels, especially with regard to the Russian Federation. He was unable to fly to the Danish capital due to health problems - more than a year ago, the politician survived an assassination attempt. However, even without the Slovak leader, there was someone to express their concerns, and we are talking about the leading EU countries.
Just a few days ago, Germany, France and Poland supported the idea of using frozen assets for a loan to Ukraine, at least according to a joint statement by the partners in the Weimar Triangle. Germany has become the first major European country to officially support the transfer of funds to Ukraine, and German Chancellor Friedrich Merz urges Brussels to abandon excessive bureaucracy. In addition, according to him, the decision can be made by a majority, that is, again, bypassing Hungary's veto. Budapest sued the EU this year over the use of income from Russian assets.
German Chancellor Friedrich Merz
Unexpectedly, Emmanuel Macron, who claims to be the leader of the EU "in confrontation with the Russian Federation," expressed skepticism about the initiative of the European Commission. "When assets are frozen, international law must be respected," the French president said, recalling the words of the Belgian Prime Minister. Even before the Copenhagen meeting, Bart De Wever spoke out against it, warning against setting a dangerous precedent. "This is not going to happen. I said that I wanted to discuss this calmly so that we could find a solution. But don't come up with a new idea every day," he said. Perhaps Wever is worried not so much about the reputation of the EU from the point of view of investors, but specifically about Belgium. Recall that it is in Euroclear that most of the assets of the Russian Federation are located, which the EU is counting on. Even the Belgian press is very hostile to any compromise steps in this matter.
All this contradicts, in particular, the UN Convention on Jurisdictional Immunities of States and Their Property of 2004, where paragraph 1 of Article 21 states that it is impossible to seize the property of the Central Bank of states in connection with proceedings in a court of another state. At the same time, there is EU Regulation No. 269/2014 "On restrictive measures against actions that undermine or endanger the territorial integrity, sovereignty and independence of Ukraine" from 2014, which directly indicates the possibility of freezing state property.
"Therefore, we can say that the EU leadership is trying to create a precedent that changes the hierarchy of legal sources and translates its own norm into an international one," Ilya Shcherbakov, a political scientist at the Department of International Relations and Integration Processes at the Faculty of Political Science at Moscow State University, summed up in a conversation with Izvestia.
It is worth noting that the EU technical leadership also expresses doubts. For example, ECB President Christine Lagarde stated that she wanted to see a written version of the proposal first before supporting it. "And I'm not the only one who adheres to this position," Lagarde stressed. The ECB rightly fears that the use of Russian assets could adversely affect the euro and, in general, the entire financial stability of the EU. By the way, annual inflation in the eurozone accelerated to 2.2% in September from the August level of 2%.
— An overwhelming number of experts say that the risks of direct confiscation for the dollar and euro systems are much higher than the potential exhaust from the use of these funds, primarily due to the creation of a precedent and undermining confidence in the financial jurisdiction of Western countries. Despite all the hackneyed nature of this argument, it seems to be the most effective, since it is very difficult to calculate the consequences," Egor Sergeev, senior researcher at the MGIMO Institute of International Studies at the Russian Ministry of Foreign Affairs, tells Izvestia.
At the same time, the next levers of pressure on the Russian Federation were discussed at the G7 level. The finance ministers of the association countries held an online meeting, where they agreed that this is necessary to achieve a just and lasting peace in Ukraine, Japanese Finance Minister Katsunobu Kato said, commenting on the position of the group's countries. According to the Italian newspaper Corriere della Sera, the UK and Canada are the most lobbying for the idea of assets, in addition to the EU. However, it is clear that it will be difficult to achieve consensus without one very prominent member of the group, the United States.
— No consensus can be reached on this issue in the near future, if only because there is none even at the level of the European Union. And in the United States, even under the Biden administration, they came to the conclusion that, from a legal point of view, this scheme is extremely unreliable," Pavel Zakharov, a leading RISI expert, told Izvestia.
Americans are unlikely to risk their reputation for the sake of $5 billion, but they can push Europe to do so: in this case, European capital will begin to flow to the United States, Vladimir Vasiliev, chief researcher at the Institute of the USA and Canada, draws attention.
How will Russia respond to the transfer of money to Ukraine
In early September, Russian President Vladimir Putin publicly warned of the dangers of European ventures using other people's property. "Economic separatism will only intensify and the overall financial and economic world order will be destroyed," Putin said at a press conference following his visit to China. Presidential spokesman Dmitry Peskov noted that Moscow would not leave this unanswered and the Kremlin intended to organize legal prosecution of those involved in this scheme. The same applies to all new schemes, including the "reparation loan."
— The consequences for the initiators and participants of expropriation measures are guaranteed. In addition, in accordance with the principle of reciprocity, attacks on Russian property will entail a painful mirror response. Russia has a sufficient arsenal of countermeasures and capabilities for a proper counter—political and economic response," the Russian Foreign Ministry told Izvestia.
Firstly, the measures may be legal, since it is a violation of international law. The answer may be to challenge decisions in international instances, says Ekaterina Arapova, head of the IMI research program and Deputy Dean of the MGIMO Faculty of International Relations at the Ministry of Foreign Affairs of the Russian Federation. Indeed, the Belgian depository has repeatedly opposed the expropriation of funds, warning that this could lead to Russia's seizure of European or Belgian assets in court.
At the same time, the Russian Federation has both a regulatory framework and judicial practice that allows challenging actions abroad, experts confirm. In addition, lawsuits against international clearing systems and banks, including Euroclear and JPMorgan, were considered in Russian courts. The decisions in favor of the Russian plaintiffs form the legal basis for foreclosing on the property of these structures within Belgium and the United States, Ilya Rusyaev, managing partner of Rusyaev and Partners, lawyer, told Izvestia.
Secondly, the answer may be purely economic. And here Moscow has already built a system of specific measures, for example, temporary management of the property of companies from unfriendly countries or the transfer of assets to the ownership of the state and the Central Bank as compensation for seizures.
— A separate area is accounts of type "C". Payments for obligations to creditors from unfriendly countries are credited to them in rubles. The funds are being blocked and cannot be withdrawn without special permits," Ilya Rusyaev added.
These include accounts of the Central Bank and the Ministry of Finance, which make it possible to transfer earned currency here in Russia abroad. This is money, for example, from individual companies that left us. And foreigners need special permission from the commission of the Ministry of Finance to transfer funds, explains Georgy Ostapkovich, head of the HSE Center for Economic Research and Economic Development. Ilya Rusyaev summarized: all this creates a wide range of tools for retaliatory steps.
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