The European Union has decided to not play follow-the-leader with the West on seizing Russian assets. They’ve figured out that if they join the asset-grabbing party, they’ll be the ones taking the biggest hit when Moscow hits back. Time to see if the EU can march to its own beat without stumbling.
It was just a month back when the West was planning to use the frozen Russian assets to aid Ukraine. The European Commission even presented a plan recently to funnel the proceeds from Russian assets frozen in the EU to help rebuild Ukraine.
But then came the Russian warning. Just a few days back Russia hit back against suggestions that its seized assets be used to fund the rebuilding of Ukraine.
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The Kremlin spokesperson, Dmitry Peskov, told reporters on December 29 that Russia had a list of foreign assets it would seize in retaliation if the West were to move on Russia’s frozen assets.
He called the notion of seizing Russian assets “outright theft.”
All this gave rise to international concerns about the legality of seizing the frozen Russian assets. Such a move could undermine the international financial system, legal and foreign-relations experts say. It could also erode trust in the US dollar and the euro as reserve currencies.
The intensity of the Russian admonition has now prompted the European Union to make a decisive move in response. In a recent Reuters report, the European Union has hinted that the prospect of seizing the frozen Russian Central Bank funds, a consequence of Ukraine-related sanctions, is deemed “unlikely.” Senior officials within the bloc revealed a lack of consensus among its members regarding the perceived risky nature of such a maneuver.
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In 2022, the United States and its allies collectively froze an estimated $300 billion in Russian state assets, attributing it to the ongoing conflict in Ukraine. Despite repeated appeals from Kiev urging the West to confiscate and redirect the funds to Ukraine, especially as financial and military assistance from Washington and Brussels dwindles, no concrete agreement has been reached on this contentious matter.
”Confiscation of the capital of the Russian assets is not going to happen. There is no agreement on this among EU member states,” said one senior EU official, described as having insight into the talks on the matter.
Seizing sovereign assets in this manner would be unprecedented and has the potential to deter global investors, who may worry that their funds would be at risk within the European Union.
”We need to be very prudent with that proposition,” Belgian Finance Minister Vincent van Peteghem told reporters on Tuesday. “I think that it’s important that what can come on the table should be legally sound and we should avoid any impact on financial stability.”
Luxembourgish Foreign Minister Xavier Bettel told Reuters he was “very cautious” about seizing Russian assets. “Imagine if we decide politically to give billions to Ukraine. And in six months we have a judicial decision saying we are not allowed to give it to them. Who will [we] pay then?” Bettel said.
The fact that the majority of the $200 billion in currently blocked Russian assets are held at the clearing company Euroclear, located in Belgium, is another source of concern for the bloc.
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”The EU cannot bail out Euroclear,” one senior official said. “Euroclear manages trillions and its bankruptcy would be far more than the budget of the EU. We have to balance risk and profit.”
Russia has cautioned the United States and its allies on several occasions that seizing its sovereign assets would be considered “theft” that would be against international law, threaten Western reserve currencies, and upset the world financial system. In addition, Moscow has access to $288 billion in Western assets, the majority of which are owned by Euroclear, which it has vowed to seize in retaliation.
The European Commission suggested last month that the money from the frozen Russian assets be taken and transferred to Ukraine, keeping the principal unaltered. The Russian assets are still generating interest. In the course of the next four years, this might total up to €17 billion ($18.5 billion), according to officials who spoke with Reuters.
The plan to send Kiev a total of €50 billion ($54.25 billion) in EU funding through 2027 has been held up by Hungary.
And if reports are to be believed the West is now already facing $300bn loss for seizing Russian assets.
The news agency RIA Novosti said over the weekend that the US and its allies may suffer enormous financial losses if Russia’s assets, which are presently frozen in the West, were taken. The US, UK, France, Germany, and other countries still have large assets in Russia that could be lost.
By the end of 2022, the EU, G7, Australia, and Switzerland had invested a total of $288 billion in foreign direct investments (FDI) in the Russian economy, according to the news agency, which cited data obtained directly from the participating nations. This is around the same amount as the frozen Russian funds that Western countries are currently thinking about seizing.
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Approximately $300 billion in Russian reserves are still blocked in the West; the US holds the remaining $200 billion, with the EU holding the majority of it. According to figures provided by RIA, the majority of the assets that the US and its allies stand to lose if they forward with the seizure plan are also owned by EU countries.
According to the news agency, as of late 2022, the members of the bloc possessed assets valued at $223.3 billion in Russia. Cyprus officially possessed more than $98 billion in assets; the Netherlands came in second with $50.1 billion.
According to the news agency, Germany had spent $17.3 billion in the Russian economy, while France and Italy had invested $16.6 billion and $12.9 billion, respectively. The UK had made $18.9 billion in investments in Russia as of the end of 2021.
The US had Russian assets valued at $9.6 billion, while Switzerland looked to be another significant investor in the Russian economy with $28.5 billion. RIA withheld the methodology used to produce its estimations.
As of January 1, 2022, the Russian Central Bank released somewhat different FDI statistics. With assets valued between $23 billion and $36 billion, the Netherlands, Luxembourg, Germany, and France were identified as the leading EU investors, with an estimated amount for Cyprus of more than $182 billion.
According to the bank, as of that date, the UK had more than $53 billion invested in Russia, while Ireland’s interests were valued at $34 billion. It calculated $6 billion in US investments.
Moscow has alerted the West to the possibility of reprisals in the event that its frozen deposits are taken. As a matter of course, we planned our retaliation ahead of time, Kremlin spokesperson Dmitry Peskov stated in late December. But he also said that at that point, the seizure of foreign assets in Russia could only be discussed theoretically.
Russia has issued several warnings that the US and its allies seizing its assets would be considered “theft,” violate international law, and threaten reserve currencies, the global financial system, and the global economy.
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The concept of taking control of Moscow’s sizable reserve reserves, which were frozen in Belgium and other EU countries shortly after the crisis began, was met with resistance by the US and other Western nations, who imposed unprecedented sanctions on Russia over the conflict with Ukraine.
Washington has suggested that working groups from the G7 look into ways to seize the $300 billion in frozen Russian assets on February 24, 2024, which is the second anniversary of the start of hostilities between Russia and Ukraine. Bloomberg earlier this month revealed that US President Joe Biden’s administration had approved the proposal.
Finally the European Union, heeding the potent Russian warning, has abandoned the United States in its quest to freeze Russian assets. Recognizing the potential repercussions, the EU strategically distances itself, acknowledging that the bloc has much more at stake than its American ally if Moscow chooses to retaliate. The EU is recalibrating its stance, leaving the US isolated in its pursuit.