EU’s frozen-assets loan plan risks rattling markets, Euroclear warns
Proposal for ‘reparations’ funding for Ukraine using immobilised Russian assets would be seen as ‘confiscation’
European governments would face higher debt costs if the EU presses ahead with plans to use Russian frozen assets to support €140bn of loans to Ukraine, the main custodian of the assets has warned.
In a letter seen by the Financial Times, the Brussels-based central securities depository Euroclear argued that the latest loan plan for Ukraine would be perceived as “confiscation” outside the EU and spook investors in European sovereign debt.
The EU has frozen some €210bn Russian state assets following Russia’s invasion of Ukraine, of which around €185bn are held at Euroclear. The Ukraine peace negotiations have renewed the pressure to agree terms for the €140bn loan for Kyiv using the immobilised Russian sovereign assets.
European Commission president Ursula von der Leyen told the European parliament on Wednesday the commission “is ready to present a legal text” on a loan backed by the immobilised assets. But the debt plan remains contentious and many of the technical details remain unresolved.
In its letter to von der Leyen and EU Council president António Costa, Euroclear warned that the so-called “reparations loan” risked damaging the attractiveness of the European financial markets and the investment climate in Europe.
“The resultant risk premium will lead to a sustained increase in European sovereign bond spreads, raising borrowing costs for all member states,” Euroclear chief executive Valérie Urbain writes in the letter.
Urbain said that the initiative hurt investment in the continent “as investors, particularly sovereign wealth funds and central banks, will perceive this initiative as being equivalent to confiscation of central bank reserves, undermining the rule of law”.
The European Commission has argued that the proposed scheme does not amount to confiscation, while acknowledging that there is a risk it might be viewed as such.
Urbain argued that forcing Euroclear to invest in “zero-interest tailored-debt instrument funding” in order to enact the scheme would be seen as confiscation by Russia, leading to retaliation and potential legal challenges that Euroclear should be covered for.
“This will lead to compensatory payments by [EU] member states to Euroclear . . . resulting in financial exposure for member states,” Urbain wrote.
She said the scheme should include unconditional, on-demand guarantees to cover Euroclear “as long as there remains legal exposure”. This would include retaliation risks in Russia and other countries, liquidity risks and “any other risks related to the subscription of the instrument”.
The letter echoes long-standing concerns raised by Belgian Prime Minister Bart De Wever around legal and financial repercussions for his country. Belgium wants to ensure other governments share the risks and include assets immobilised in their jurisdictions.
Since EU leaders failed to agree on the loan at their last summit in October, von der Leyen has also floated the idea of providing bilateral grants or raising new joint debt to fund Ukraine if they are unable to agree how to use frozen Russian assets.
But US President Donald Trump’s new peace push for Ukraine, which initially proposed the frozen assets are used for US-led investment funds in Ukraine and Russia, has raised pressure on the bloc to decide on the loan proposal.
Both the commission and a majority of EU countries hope to clinch a deal on the loan, which would require unanimous support, at the next leaders meeting in Brussels on December 18. Euroclear declined to comment.