Europe and the United States are discussing options for confiscating $285 billion of Russian savings frozen in the West. They want to give them to Ukraine for protection from aggression and post-war reconstruction. But is this possible?
The situation is unprecedented. Never before have they tried to take so much money from a nuclear country and one of the permanent members of the UN Security Council. Thus, Iraq was forced to pay compensation to Kuwait and other countries affected by the first war.
Argentina was billed for the Falklands. But the world has not attempted such a large-scale confiscation since the Treaty of Versailles, which imposed tribute on Germany after the First World War.
The voices of confiscation supporters are becoming increasingly louder. Scenarios for the seizure of assets are also growing, the lion's share of which the Kremlin transferred from the United States to Europe before the war in the hope that the EU would not break ties with Russia, its major trading partner and main supplier of energy resources, for the sake of Ukraine.
Critics of the confiscation in the West fear the move would undermine financial stability and the role of the dollar and euro as major reserve currencies. The Kremlin, for its part, promises to respond by seizing Western assets locked up in Russia.
The United States, Europe and allies wanted to agree on confiscation before the February G7 meeting, but it did not work out. The next deadline is a summit of leaders of developed democratic countries in Italy in mid-June.
The situation is becoming more confusing every day. We tried to answer the main questions - how much money is frozen, can it be taken from Russia and given to Ukraine, how exactly, what will be the consequences when everything happens?
Here's what we know today.
Why do they want to take it?
The first argument is that Russia’s aggression caused enormous damage to Ukraine. The World Bank has already estimated the cost of restoration and reconstruction of the country at $411 billion, which exceeds the volume of frozen Russian assets.
Back in December 2023, the leaders of the G7 countries vowed that they would not unfreeze anything until the Kremlin compensated for Ukraine’s losses.
“The logic is simple. Russian assets will not return to Russia in the near future. And Ukraine, according to international law, must receive compensation from Russia,” Philip Zelikov from Stanford University advocates for confiscation.
He is a veteran of the US State Department and one of the first to publicly raise the issue of Russian assets after the invasion of Ukraine.
“Russia made a colossal mistake of historical proportions. “There are no precedents in history for an aggressor country to keep colossal amounts of money in accounts in countries that suffered from its aggression,” he said. “It immediately seemed logical to me that these countries would want to take advantage of the situation and use frozen Russian money to help Ukraine. But it took them almost two years.”
The second argument is to demonstrate to Vladimir Putin the unity and determination of the West at a time when this is increasingly in doubt due to the refusal of the US Congress to allocate aid to Ukraine and disputes within the EU about the scale of sanctions and military assistance.
“Putin understands only the language of force. And he needs to demonstrate this strength in order to force him to peace. Because today, let’s face it, Putin is laughing in our faces,” said Johan van Overtveldt, Chairman of the Budget Committee of the European Parliament and former Belgian Finance Minister.
He proposed his own scheme - not to confiscate 190 billion euros of Russian assets frozen in Europe, but to use them as collateral for a loan. Give the money to Ukraine, and force Russia to repay the loan after the end of the war.
“We need to act more boldly,” he said. “Yes, the confiscation of almost 200 billion euros will have legal, monetary and geopolitical risks. But it’s much more dangerous to sit idly by now.”
The third argument is that Ukraine needs money now, and the West is allocating less and less.
Supporting Ukraine costs tens of billions a year. And while Europe managed to overcome political differences within the EU and approved the aid budget, the second key sponsor of the Ukrainian resistance—the United States—suspended allocations at the end of 2023.
The leader of the presidential race, Donald Trump, is threatening not to allocate a single penny to Ukraine if he wins the elections in November.
Due to the lack of military assistance, the Ukrainian army is losing ground to the Russian one, and without financial support, the budget may not have enough money to maintain the country, pay pensions, salaries and restore critical infrastructure, which Russia bombs every day.
This year, Kyiv needs about 40 billion in aid, of which the EU and IMF have so far promised only half.
Confiscation of Russian assets would help the West resolve the financial issue of supporting Ukraine for several years to come.
Who's for, who's against
Americans are for it. Even Treasury Secretary Janet Yellen already supports confiscation. Back in December, she was worried about the fate of the dollar, but at the end of February, at a meeting of G20 ministers and bankers, she changed her tune.
“Our coalition, representing more than half the global economy, has committed to not unfreezing $285 billion in Russian assets until Russia has repaired the enormous damage it has caused,” she said.
“I think we urgently need to find a way to use Russian assets to help Ukraine finance defense and reconstruction. There are strong arguments for this - legal, economic and moral. But we must act together and carefully.”
Yellen stopped worrying about the dollar and the euro. The world still stores almost 60% of savings in dollars, about 20% in euros and only about 3% in Chinese yuan.
“In fact, there are no alternatives to the dollar, euro and yen (Japanese currency - Ed.), so I’m not too worried about this. The risk to financial stability will only arise in the event of a massive abandonment of these currencies. But I think this is extremely unlikely, especially given the unique situation in which Russia is brazenly violating international norms.”
But the opinion of Americans is secondary here. The main word is with the Europeans.
Of the 285 billion Russian reserves, only about 5 billion are frozen in the United States. The rest lies in European accounts.
At first, European politicians spoke cautiously, but as the June EU elections approached and amid problems with the approval of American aid to Ukraine, there was talk of confiscation.
“The time has come to start talking about using the proceeds from frozen Russian assets to jointly purchase military equipment for Ukraine,” European Commission President Ursula von der Leyen said in late February.
The European Commission - in fact the EU government - is preparing a plan for the partial use of Russian money or income from its investment, but this plan has not yet been presented. Perhaps it will appear in time for the EU summit on March 21-22.
But any plan could face opposition from one of the 27 EU countries. Hungary traditionally blocks sanctions against Russia and even spoke out against the confiscation of assets.
Pro-Russian politicians in the skeptic camp are supported by technocrats from countries that opposed Russian aggression.
“Every step towards (confiscation), especially of central bank assets, must be carefully weighed in terms of legality and consequences. Our goal is to support Ukraine and weaken Putin, not to weaken the West and undermine global order and financial stability,” said German Finance Minister Christian Lindner.
And last week, French President Emmanuel Macron allowed the expropriation of interest on frozen assets, but said that the assets themselves could not be touched.
“We are not in favor of doing things that are prohibited by international law and starting a debate that, in my opinion, will weaken Europe,” Macron said.
What are the confiscation options?
The frozen assets are the foreign exchange reserves of the Russian central bank, which it deposited in foreign accounts in dollars, euros, pounds, yen and francs before the war. The bulk - almost 200 billion euros - is held in the form of securities in the Belgian depository Euroclear.
Bonds generate income and some are repaid and converted into cash. According to Belgian law, such income can be taxed, at least 100%.
"Using someone else's assets as collateral is little different from seizing those assets," Euroclear chief Liv Mostray said, warning that any manipulation of Russian assets would undermine confidence in European capital markets and the euro as a reserve currency.
Since we are talking only about one country and a tax, and not a confiscation, it is about this money that the discussion has been going on so far.
But in this way, the EU will only receive a couple of billion euros a year for Ukraine, since we are talking only about interest, and not about the main amount of Russia’s frozen reserves.
Moreover, it will not be possible to withdraw the almost 4 billion euros of interest already accumulated, because even if the European law is adopted, it does not have retroactive effect. In addition, this money has already been set aside for legal delays with Russia.
“Interest is a drop in the ocean, taking into account the needs of Ukraine,” Johan van Overtveldt, chairman of the budget committee of the European Parliament, rejects this option. “But there is a middle way between doing nothing and taking only the interest.”
He suggested using the frozen 200 billion as collateral. The EU could take out a loan against it to help Ukraine, and make repayment of the loan a condition for peace negotiations with the Kremlin after the end of the war.
There is still a long way to go before deciding what to do with the main amount of Russian money seized in the West. What is clear for now is that even if the 27 EU countries suddenly agree among themselves next week, they will not take any unilateral action without the full and unconditional support of their allies - the United States, Great Britain, Canada, Australia and Japan.
And it will have to wait at least until the June G7 summit in Italy.
