Euro's global position could fall if EU sends Russia assets to Ukraine
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The commission warns Europe's Central Bank that wiring interest revenue of Russian frozen assets to Kiev could set a precedent with undesirable repercussions on the blocs' currency.
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The headquarters of the European Central Bank. (AFP)
The European Central Bank ECB warned in an internal memo the European Commission EC from seizing interests accumulated by frozen Russian assets, The Financial Times (FT) reported on Friday.
The memo obtained by the newspaper revealed that ECB is concerned that such action would motivate other central banks with large reserve currencies to "turn their back" on the euro, over fears that this would set a precedent endangering their currency holdings, especially if this measure was carried out independently by the union without its G7 partners.
Legal dilemma
Earlier this week, a bipartisan bill was introduced in the United States authorizing US President Joe Biden to seize Russian assets and hand them over them to Kiev to finance the reconstruction project after the conflict ends.
It also calls on Biden to push for the formation of a “common international compensation mechanism” with American partners, such as the EU, to ensure that Russian assets seized in allied countries are also funneled to Ukraine to fund the proxy war against Russia.
The European Council previously said it had requested recommendations from the European Commission on means of using Russian assets to help in the restoration of Ukraine.
Read more: Russian embassy in US slams US for wiring frozen assets to Kiev
However, doubts in the US and Europe over the legality and viability of funding Ukraine's reconstruction, using confiscated Russian assets, made it difficult to conclude a joint general agreement on the guidelines and mechanism of the measure.
The European Union has been considering other ways to transfer money, in attempts to bypass the legal dilemma. Using interests generated on Russia's seized sovereign assets to budget the Western plan was between the options.
“There is no disagreement that this is morally the right thing to do, but the ‘how’ is very difficult. You can’t skirt the rule of law. And if you find something that is legally tenable what are the implications for the euro’s standing as a global currency?” an EU official told FT.
Commission experts have reached earlier that "sobering conclusion," despite having claimed that "there is a political will but legal barriers are high."
The commission is preparing final drafts of proposals to tap into Russian frozen assets, that will be present later in June, the official told the newspaper.
By hook or by crook
European Commission President Ursula von der Leyen suggested last November establishing a "structure" in order to manage Russian frozen assets and use them to fund Ukraine. But in April, German newspaper Die Welt reported that EC lawyers concluded that the assets of the Bank of Russia frozen by the EU will be returned to Moscow once the war in Ukraine ends.
Following the statement, Russian Deputy Foreign Minister Alexander Grushko accused the Commission of trying to loot Russian assets "by hook or by crook."
"All this feverish activity of the European Commission is aimed at finding ways by hook or by crook to 'legitimize' the illegal sanctions adopted against our country and stealing assets belonging to Russian individuals and legal entities," Grushko told Sputnik then.
Read more: Ukraine trap; EU stuck in old era as Global South crafts multipolarity
Medieval practices
Following the outbreak of the war in Ukraine, Western countries imposed various sanctions on Russia from a ban on Russian gold to removing its banks from the international SWIFT monetary system, with the decision to freeze around half of Russia's foreign assets - nearly $300 billion - deemed a step too far by many political leaders and analysts.
Europe alone froze around €196.6 billion ($215 billion) in Russian assets, The Financial Times reported.
Euroclear, a Belgium-based global financial institution €734 million ($805 million)specializing in settling trade disputes and ensuring the security of funds, has accumulated alone around €734 million ($805 million) in interests on Russian assets in the first quarter Q1 of 2023.
Also, over $80 billion of assets belonging to Russian citizens were frozen
During his speech at the economic forum held in St. Petersburg earlier this week, Russian President Vladimir Putin called these actions “medieval.”
“Many businessmen were stunned to see that their accounts in the West were frozen. It never crossed anyone’s mind. This is robbery. They closed them, took them away, and won’t even explain why. It’s shocking. It’s like the Middle Ages,” he said.
