In a significant policy shift, the European Union (EU) has decided to segregate frozen Russian central bank assets held within the EU, abandoning previous commitments to utilize windfall profits for the reconstruction of Ukraine. The decision, officially adopted by the European Commission, is seen as a response to growing legal concerns surrounding the potential breach of international law in seizing the funds as reparations for the Ukraine war.
Wavering Western Support for Ukraine Raises Stakes
As support for the war-torn nation of Ukraine wavers, Western nations face challenges in maintaining financial aid commitments. US President Joe Biden encounters scepticism from Republicans over ongoing financial assistance, while Hungary’s Viktor Orbán threatens to veto a €50 billion EU package. The decision to segregate Russian assets reflects a cautious approach by EU member states, who must unanimously agree on sanctions measures, highlighting potential divisions within the bloc.
Segregation of Russian Assets: A Tactical U-Turn
The EU’s latest plans, undisclosed but formally adopted by the European Commission, require financial depositaries like Euroclear to register frozen Russian assets separately, withholding profits from shareholders. While seizing Russian state profits as reparations for Ukraine remains a “long-term” goal, there is no specified deadline or condition for such actions, deviating from President Ursula von der Leyen’s October commitment to using profits for Ukraine’s reconstruction.
Legal Hurdles and Financial Complexities
With approximately €200 billion of Russian central bank assets in the EU, primarily held by Belgium’s Euroclear, concerns about setting risky legal precedents may have influenced the U-turn. Confiscating the securities themselves faces challenges unless a specific crime is identified, with the European Central Bank cautioning against actions that could harm the euro’s reputation as a secure currency. Despite this, Belgium’s Prime Minister Alexander De Croo has pledged to direct approximately €1.5 billion in corporate taxes from Euroclear’s windfall directly to Ukraine.
Strengthening Sanctions Amidst Legislative Agreements
In tandem with the policy shift, EU lawmakers and governments have reached two legislative agreements to criminalize sanctions violations. The measures aim to impose penalties, including asset seizure, withdrawal of trading permits, and potential five-year jail sentences for those who circumvent sanctions. These developments underscore the EU’s evolving strategy in response to the ongoing crisis, balancing legal considerations with the imperative to address the pressing needs of Ukraine’s reconstruction.
SOURCE: Ref Image from EUobserver
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