Europe must liberate Belgium from its huge Russian assets risk
What happens if the US tries to take control of the hundreds of billions blocked in Euroclear?
We have returned to the point in the geopolitical cycle where US President Donald Trump is ready to betray Ukraine in order to cosy up to Russia’s dictator Vladimir Putin. Bilateral talks with Russia, demands sprung on Ukrainians, the apparent throttling of satellite services, alleged threats to weapon supplies — there are so many echoes of previous low points.
An issue of special concern to Europe is also back in the mix: the US has floated taking oversight of hundreds of billions of Russian central bank assets blocked in the EU.
There was already debate in Europe about what to do with this money — which is mostly stuck in Euroclear, the Belgian central securities depository — as thoughts turn to the next stage of Ukrainian financing. There also remains the desire to make Russia pay. The last attempt to use the assets was successfully resisted by Belgium, which feared shouldering all the risks of doing so alone.
Germany’s chancellor has rebuffed US designs on the assets: “This is our matter, and we decide on it.” That is the right response: the asset block is a key source of EU strategic influence. But it is not well placed to resist a determined US push. If Trump really wants the money, expect a barrage of political extortion, legal manoeuvring and propaganda designed to divide Europeans and weaken their resolve.
The EU must prioritise the essentials. How to mobilise assets for Ukraine’s benefit can wait another day; what is urgent is cementing the ability to make that decision as well as reducing related risks. Most importantly, there is a weak point to address: the fate of a too-big-to-fail market infrastructure provider (Euroclear) and the public finances of a small Eurozone country (Belgium) are tied up with the fate of the assets. It shouldn’t need saying that a multitrillion-euro operation that is crucial to the working of financial markets ought not to be exposed to legal, reputational and political risks beyond its control.
On purely prudential grounds, the EU needs to fix this. Quite separately from Ukraine’s war of survival, it is a matter of sensible regulatory supervision and risk management.
What is required is conceptually straightforward: the Russia-related assets and liabilities must be shifted out of Euroclear into a standalone entity in a country more able to bear any residual risk. That may sound mundane. But mundane can be what the EU does best.
In particular, EU law empowers the European Central Bank “to restrict or limit the business, operations or network of institutions or to request the divestment of activities that pose excessive risks to the soundness of an institution” and “to require the reduction of the risk inherent in the activities, products and systems of institutions”. It can, in other words, tell Euroclear to split off the risky part of its balance sheet into a separate entity. With Russia’s claim and the cash to cover it sitting in a new unrelated bank, Euroclear’s market-critical functioning would be insulated from the risks. So would Belgium’s public finances. To break the links completely, a consortium of willing member states could buy the new bank from Euroclear’s holding company.
Such a restructuring would not change Russia’s claim or resolve Ukraine’s funding problems. But it would expand the EU’s room for manoeuvre and remove a major chink in its armour if the US sets its mind on taking control of the money. Above all, it would de-risk the Eurozone financial system.
One snag is that the ECB, which directly supervises “significant” institutions judged on their size, importance or cross-border presence — Euroclear meets this test — has invoked a legal provision for when “particular circumstances” make it “inappropriate” to shift supervision away from national level. So Belgium’s central bank remains in charge.
This is irresponsible. There can be no doubt the situation contains risks that should not be handled by Belgium alone. The ECB has not published the reasons for its decision to decline direct supervision. But it tells me that market infrastructure companies have always been thought to be better supervised by their specialised national regulator. That may make sense in most cases. It is less convincing here, where the risk clearly arises from banking liabilities owed to Moscow.
But this should not stop the ECB from acting. It can take over direct supervision anyway, or work with the national regulator. The question is not one of powers, but of judgment and will: whether it sees the current situation as risky and wants to do something about it.