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Feb 29, 2024, 4:35pm EST
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Semafor Signals

EU and US actively looking at using frozen Russian assets to fund Ukraine

Insights from the Financial Times, El País, and The Bell

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U.S. Treasury Secretary Janet Yellen speaks during a press conference to highlight her key priorities for the G20 Finance Ministers and Central Bank Governors meetings, in Sao Paulo, Brazil, February 27, 2024.
REUTERS/Carla Carniel
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Top U.S. and EU officials are actively exploring using hundreds of billions of dollars in frozen Russian assets lying in Western banks to help fund Ukraine, after President Volodymyr Zelenskyy said aid was needed within a month as Kyiv seeks to turn its embattled war effort around.

Seizing Russian assets would open up as much as $285 billion for Ukraine at a moment where the U.S. is struggling to pass a crucial $60 billion aid package – but critics warn that any move to seize bank-held assets could undermine faith in Western financial markets.

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“It is necessary and urgent for our coalition to find a way to unlock the value of these immobilized assets to support Ukraine’s continued resistance and long-term reconstruction,” U.S. Treasury Secretary Janet Yellen told a meeting of the G20 on Tuesday, adding that there was a “strong international law, economic and moral case” for finding a way to use the assets.

One option is to seize the assets, but they could also be used as collateral to borrow on global markets, Yellen said at the meeting in the Brazilian city of Sao Paulo, adding that the US has no “preferred strategy” at present.

A day later, the EU’s most powerful official advocated seizing profits generated by the assets and deploying the funds to the war effort.

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“It is time to start a conversation about using the windfall profits of frozen Russian assets to jointly purchase military equipment for Ukraine,” EU Commission President Ursula Von der Leyen told MEPs.

The Commission is expected to present a plan for how to use the profits in mid-March, Politico reported.

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SIGNALS

Semafor Signals: Global insights on today's biggest stories.

Russian assets could go towards rebuilding Ukraine or supporting its army

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Sources:  
The World Bank, European Council on Foreign Relations, Timothy Garton Ash

There are two main scenarios for how confiscated funds could be used to assist Ukraine. The first option would be to use the funds to fund the country’s urgently needed reconstruction. The World Bank estimates that Russia has caused more than $150 billion in direct damage to Ukraine and that the country will need almost $500 billion to recover and rebuild. Ukraine has proposed an international mechanism for recording the claims of damage and dispersing the funds, two experts wrote for the European Council on Foreign Relations. Another proposal is to use the funds for “Trump proofing” military support to Ukraine — ensuring that Ukraine still has funds to purchase ammunition and other key military supplies even if a future U.S. president were to cut aid — the Oxford professor Timothy Garton Ash wrote on Substack.

Will Ukraine get all the cash or just the profits Russia’s assets generate?

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Sources:  
CNN, Financial Times, Politico, Bloomberg

It is also undecided whether Ukraine would be allowed to tap all the assets or be limited to skimming the profits off Moscow’s billions. The Russian assets frozen in the Belgian-based central securities depository Euroclear have already earned more than $5 billion in interest, the company said. The EU has agreed in principle to set aside future profits from the Euroclear funds, which make up a majority of Russian immobilized assets, the Financial Times reported. Brad Setser of the Council on Foreign Relations has estimated that the interest on Russia’s assets could be up to $10 billion a year — a significant amount given Kyiv’s $37 billion budget gap. Some countries, including the U.S., favor the more expansive approach of seizing some of Russia’s money directly, Bloomberg reported. But as the U.S. only holds a small portion of Russia’s assets, Washington is hesitant to act alone, a congressional source told Bloomberg.

Some European countries remain skeptical, citing lack of legal basis

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Sources:  
Reuters, The New York Times, El País, The Bell

The EU is unlikely to agree to confiscate the funds, one senior official told Reuters, as questions remain about the legality and the impact that an unprecedented seizure of state assets could have. One worry is that investors may pull out of euro currency assets due to fear that their money too could be seized. “We don’t have the legal basis to seize the Russian assets and we should never act if we don’t obey by the international law and by the rule of law,” France’s finance minister said, adding that he favored seizing the interest accrued from Russian assets. Belgium, which holds the bulk of the frozen funds, is also concerned about damaging Euroclear’s reputation on financial markets, according to the Russian independent economics outlet The Bell. The fact that Belgium currently holds the rotating EU presidency “significantly reduces the likelihood of any radical steps in the immediate future,” The Bell reported. And Moscow has warned that it would retaliate in kind, seizing Western assets in Russia if the West were to confiscate Russian capital.

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