G7 Considers Using Frozen Russian Assets For Ukraine Support

Legal and economic implications are being considered as the G7 weighs using €260 billion in frozen Russian assets for Ukraine aid.

How is Ukraine's war effort being funded?

The G7 nations are currently in discussions about the potential use of frozen Russian funds to support Ukraine. This comes in the wake of comprehensive sanctions imposed on Russia following its invasion of Ukraine. The proposal involves redirecting funds from the Russian central bank that are currently frozen in various Western financial systems to aid Kyiv.

Location And Scale Of Frozen Assets

European Union countries and G7 members, including Australia, hold approximately €260 billion of the Russian central bank's assets. The majority of these assets, around €210 billion, are within the EU, comprising cash and government bonds in various currencies. The US has frozen a comparatively small amount, around $5 billion. The largest portion within Europe is held by Euroclear in Belgium, with France and Germany holding significant but smaller amounts.

The United States' Perspective

The US has not openly endorsed the confiscation of Russian assets but has discussed the idea as a countermeasure. A G7 discussion paper from the US proposes this action as a legal response to Russia's aggression, potentially disbursing the funds to Ukraine through international financial institutions. This approach is seen as a provisional step towards Russia's eventual compensation for war damages to Ukraine.

Vladimir Putin
Vladimir Putin: Contemplating the Potential Redirection of Russian Assets to Ukraine - What Will Be Moscow's Response? (Photo: Gavriil Grigorov)

The confiscation of Russian sovereign assets presents significant legal challenges, as central bank assets are generally protected under international law. However, some experts argue that this situation warrants an exception, drawing parallels to Iraq's compensation for the 1990 invasion of Kuwait. Critics, such as Professor Ingrid Brunk, a professor of international law at Vanderbilt Law School, caution against the approach, citing its potential to disrupt international legal norms.

Potential Financial Implications

There are concerns that seizing Russian assets could undermine the international financial system's trust and stability. The European Central Bank has expressed worry about the impact on the euro's international role. However, proponents like UK Foreign Secretary Lord David Cameron downplay these concerns, suggesting that the current freezing of assets has already caused significant disruptions.

Recommended: Evaluating The Efficacy Of The G7's Price Cap On Russian Oil

European Union's Position and Concerns

The EU, while seeking consensus among G7 nations, remains wary, particularly given the scale of Russian assets held in Europe. European officials are concerned about possible retaliation and the implications of undermining state immunity. Instead of outright asset seizure, the EU is considering alternative measures such as leveraging profits generated by Euroclear from holding these assets.

The European Union's Alternative Approach

Rather than directly seizing the assets, the EU is contemplating a plan to appropriate profits generated by Euroclear from Russian assets. This approach aims to strike a balance between acting against Russia and mitigating broader financial risks. The ongoing G7 discussions might influence the progression of this EU proposal.

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