EU wants to use frozen Russian assets to fund Ukraine reconstruction
Ursula von der Leyen says Brussels has ‘the means’ to make Moscow pay for rebuilding war-torn country
Brussels wants to use the frozen assets of Russia’s central bank to generate profits that could be deployed in the reconstruction of Ukraine, as the country’s critical infrastructure comes under sustained attack 10 months into the war.
Under a European Commission proposal, the EU would shift the liquid assets of the Russian state that were frozen under sanctions into a fund, which would be actively managed to generate a “stable and fair net return” to help pay to rebuild Ukraine.
The underlying assets would not be permanently confiscated under the plan, but would be returned to the Russian state if a peace agreement were signed, according to a discussion paper, which stressed the need for co-ordinated action at an international level.
“Russia must pay for its horrific crimes, including its crime of aggression against a sovereign state,” Ursula von der Leyen, the commission president said on Wednesday. “Russia and its oligarchs have to compensate Ukraine for the damage and cover the costs for rebuilding the country. And we have the means to make Russia pay.”
The EU and its allies froze hundreds of billions of dollars of foreign exchange reserves parked in accounts by the Russian central bank early in the conflict. Russia said subsequently that the central bank sanctions had frozen about $300bn out of its gold and forex reserves.
Some EU officials have since spoken out in favour of confiscating the assets outright, including Josep Borrell, the EU’s high representative, who said such a move would be “full of logic”.
But confiscating the sovereign assets would be fraught under international law and officials acknowledge it could create financial stability risks. US Treasury secretary Janet Yellen said in April that confiscating Russian state assets should not be done lightly, should be carried out only in co-ordination with allies and might require legislation in the US.
Under the commission proposal, the Russian state would be entitled to have the assets returned if there was a peace deal, potentially along with some minimal accrued interest. In the meantime, the liquid assets of the Russian state would be invested to generate returns to pay for reconstruction.
This would an unprecedented initiative, a commission official said, stressing that it would need to be discussed at EU level and with international partners. There had already been preliminary talks with the US about the topic, another official added.
However, EU work on the plan is being hamstrung by a lack of information about the whereabouts and scale of the frozen Russian central bank assets — even those held by various EU central banks. The commission discussion paper stated the total amount of Russian public assets immobilised in the EU was “currently unknown”.
One of the commission officials said there was not enough information flowing from member states, calling for “more and better” data.
Potential ways to seize and utilise Russian assets for Ukraine’s benefit were also discussed at a summit of Nato foreign ministers in Bucharest on Tuesday, according to people involved in the discussions.
While a demand for action on the assets was not included in a joint statement agreed by the Nato ministers, many endorsed the EU’s efforts to explore the idea.
“Russia must be punished,” said one of the people involved in the Nato discussions. “So that means seizing these assets, using them to help Ukraine and finding a [legal] way to justify it.”
The commission is also pushing forward with plans to make sanctions violation a crime across the EU, a move that could facilitate the confiscation of private assets. It said that almost €18.9bn of private assets, belonging to oligarchs and other entities, was currently frozen in the EU.
The commission is separately proposing the creation of a specialised court backed by the UN to investigate and prosecute Russia’s “crime of aggression”.