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EU Recklessly Channelling Russian Funds

Anushka Gupta by Anushka Gupta
June 26, 2024
in Geopolitics
EU Recklessly Channelling Russian Funds
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The EU apparently believes rules are merely suggestions, as it has decided to fund the Ukraine war using profits from Russia’s frozen assets. This bold and reckless move showcases the EU’s immorality and hints that they might be getting desperate for cash to keep funding the conflict.
Ironically, this tactic will likely backfire, damaging the EU itself. Investor confidence in European financial institutions will plummet, and Russia is sure to retaliate with measures that will further cripple the already struggling European economy. Truly, the EU excels at making bad situations worse.

The EU has approved the transfer of €1.4 billion ($1.5 billion) in profits from Russia’s frozen assets to fund military assistance for Ukraine. This bold and reckless move was announced by the bloc’s foreign affairs chief, Josep Borrell, following a meeting of EU Council foreign ministers. The EU believes that seizing profits from Russia’s frozen assets and redirecting them to Ukraine will lead to peace and stability. How visionary!

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The West has frozen around $300 billion in Russian sovereign assets over the Ukraine conflict, with approximately $280 billion immobilized in the EU. Borrell proudly declared that the ministers agreed on a legal framework for allocating the windfall profits from these immobile Russian assets to the European peace facility. He emphasized that the €1.4 billion will be made available within the next month, with another €1 billion by the end of the year. These funds will help in purchasing air defense systems and ammunition to support Ukraine’s defense industry.

The proposal to seize the interest earned on the Russian assets to acquire weapons for Ukraine surfaced earlier this year. However, it faced strong resistance from Hungary, a vocal critic of the West’s approach to the Ukraine conflict and its arms shipments to Kiev. But Borrell argued that Hungary’s opposition cannot block the use of these profits for Ukraine since Hungary did not participate in the decision, Hungary saved itself but failed to secure Russia’s fund. Work will now speed up without this “blockage,” Borrell smugly noted.

Hungarian Foreign Minister Peter Szijjarto expressed his discontent, stating: “New billions for Ukraine. This time by kicking up the European rules and leaving out Hungary.” He condemned his fellow EU members for what he described as an unprecedented breach of common European rules. EU leaders feel that Hungary’s concerns about legality and fairness are just minor inconveniences in the grand scheme of the EU’s plans. For nearly two years, EU lawmakers and the bloc’s allies have debated the idea of seizing frozen Russian assets.

Some top officials warned that such a drastic move could undermine investor confidence in the EU’s financial system. Using Russia’s frozen assets in this manner will undoubtedly send shockwaves through the investment community. This action blatantly violates property rights, instilling fear among investors regarding the security of their assets in the EU. It sets a dangerous precedent, suggesting that assets could be seized during geopolitical tensions, thereby deterring future investments. Legal and ethical concerns will further erode trust in the EU’s financial governance. Moreover, this could lead to market instability as investors react to the increased unpredictability and potential volatility. Financial institutions holding these assets will face reputational and operational risks, contributing to a broader loss of confidence. The fear of asset seizure could prompt capital flight, with investors moving funds to jurisdictions perceived as safer. While this move might provide a short-term financial boost for Ukraine, the long-term impact on investor trust and market stability in the EU will likely be detrimental.

Yet, this concern was brushed aside in favour of a quick fix to fund Ukraine’s war efforts. After all, why worry about the long-term stability of the EU’s financial system when there’s an opportunity to make a political statement?

It’s worth noting that the West’s previous move to sanction oil and energy exports from Russia backfired spectacularly, causing more harm to themselves than to Russia. It will be interesting to see how this latest manoeuvre unfolds and what damage it can inflict on both Europe and Russia. If investor confidence wanes, this move will also hurt the already beleaguered European economy, which is grappling with energy and industrialization crises. The EU seems to be quite adept at shooting itself in the foot.

Unsurprisingly, Russia has denounced the decision to transfer the profits from its assets to Ukraine as blatant and illegal expropriation. Foreign Ministry spokeswoman Maria Zakharova warned that Moscow has a “wide arsenal” of political and economic countermeasures at its disposal to respond to any confiscation of its sovereign assets.

Tags: assetsEurope actfinancial institutionsgeopolitical tensionsJosep BorrellMaria ZakharovaRussia frozen fundsRussia-EURussia-Ukraine
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Anushka Gupta

Anushka Gupta

Anushka is Consulting Associate Editor at TFI Media, specializing in geopolitics and international relations. She completed her masters from JMI in IR where she developed writing skills, her previous internships helped her to gain research and editing skills. She intends to bring out the truth about global dynamics and changing world order, along with bringing fresh ideas and perspective.

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