Move Moscow's account from Belgium
LAW
Why is transferring the sovereign assets not confiscation?
The Central Bank of Russia will remain the sole beneficial owner of the accounts after they are moved to the new EU custodian. Individual and corporate accounts are often transferred by regulatory action. This is not confiscation. There is also a precedent for moving sovereign assets. After Saddam Hussein’s fall, Iraqi accounts were transferred to the Federal Reserve in New York.
Don’t states have sovereign immunity?
Sovereign immunity does not give complete immunity. In particular, it does not absolve Russia from its obligation under international law to pay for the damage inflicted by its invasion of Ukraine. If one really believed that sovereign immunity provided an absolute protection from interference with Russia’s assets, there would have been no justification for freezing them.
How could the EU use qualified majority voting?
Article 122 of the TFEU can be used to transfer the accounts. The EU’s so-called emergency power uses qualified majority voting, where no country has a veto. The proposed regulation is drafted to fit within the limits that the EU Court of Justice has set for using Article 122: it is time-limited, it has a clear internal-stability rationale (protection of Belgium and Euroclear), and it operates without prejudice to the parallel CFSP architecture.
Furthermore, the measure would be temporary, lasting until Russia stops its unjustified aggression against Ukraine and pays reparations for the damage it has caused. These are the same conditions used to immobilise Moscow’s assets in a December regulation, which also used Article 122. The new regulation transferring the accounts would amend the December regulation.
Article 122 is justified by the need to protect Belgium and Euroclear, a systemically important piece of financial plumbing, from Kremlin bullying. It would preserve financial stability and public security.
There are two relevant precedents for using Article 122 to create special EU facilities. One was the European Financial Stabilisation Mechanism during the euro crisis. The other was SURE during the Covid crisis.
Wouldn’t the custodian be based in a member state, exposing that country to bullying?
No. The new custodian would not be a new corporate entity – and, as such, it would not be domiciled in any individual member state. The EU as a whole would be taking the responsibility for acting as custodian for the immobilised Russian accounts.
How will the indemnity protect Belgium?
The legal risks to Belgium and other member states that are forced to transfer frozen Russian accounts to the EU itself will be minuscule. Russia may, of course, argue that these countries should not have transferred the accounts. But Belgium and the others will not be doing this of their own free will. The fact that they are complying with an EU regulation will provide them with an excellent defence against any complaint Russia might raise, for example under its investment treaty with Belgium.
There’s a good precedent. Some Mexican investors sued Spain under the countries' investment treaty after they lost money following the resolution of the bankrupt Banco Popular. The case made clear that any liability for the EU measures imposed on Spain was with the EU and not Spain, as the latter had no choice but to follow EU law.
What’s more, the EU will indemnify Belgium and Euroclear – and other member states with frozen Russian assets - against the slim risk that they suffer damages from the mandatorily-instructed change of custodian. The EU will not be taking on any extra risks from providing this indemnity as Russia will already be able to sue it for mandating the transfer. These risks are slim because transferring the account is neither confiscation nor expropriation.
This indemnity will be very different from the extensive list of guarantees that Belgium was demanding in return for greenlighting the Reparations Loan last year. It then wanted a guarantee that other member states would reimburse any money borrowed from Euroclear within 24 hours. But there will be no need for such a liquidity guarantee, as Euroclear will no longer be custodian for the Russian account. There will also be no need for member states to provide any indemnity as the EU itself would provide that.
Won’t the indemnity require unanimity?
No. The EU will be providing a contingent off balance sheet indemnity. There will therefore be no need to modify the EU’s Multiannual Financial Framework or budget - and so no need for unanimity. The same regulation under Article 122 that moves the account will provide the indemnity, and this can be done under qualified majority voting.
Couldn’t the Central Bank of Russia sue in Russia and try to execute a judgment in a third country?
The CBR could indeed sue in Russia. But if it won, its ability to collect in a third country is next to zero. While North Korea or Belarus might conceivably do the Kremlin’s bidding, they would not be able to grab any useful assets. Meanwhile, China would be very reluctant to tear apart the global investment regime which has benefited it so much in order to please Putin. Beijing has outstanding international bonds and presumably wishes to retain access to that market. Were it to enforce a Russian judgment against any Euroclear assets in China, it would jeopardise its access to the world’s largest securities clearing platform. What’s more, insofar as there is a slim risk in moving the account, the same risk applies to freezing it.
How does this plan differ from the Reparations Loan that the European Commission proposed last year?
Transferring the Russian accounts to the EU differs from the Reparations Loan that the European Commission proposed last year. It wanted to leave Moscow’s account at Euroclear and borrow the cash. This exposed Belgium, where Euroclear is based, to legal and other risks. The solution is to move the liabilities as well as the assets to the EU itself, so taking Belgium out of the line of fire.
Such a transfer was actually the first step of the original Reparations Loan plan that a group of us proposed. When the Commission adopted our idea, it missed out this essential first step. You can read our original proposal here.
FINANCE
Isn’t the new EU €90bn loan supposed to last two years?
The EU’s maths only works on the assumption that others provide €45bn to Ukraine – above and beyond what has already been earmarked. There is no sign they will provide anything like that amount of money. Most of the Ukraine’s allies face fiscal difficulties. While the UK is considering contributing to the interest payments on the €90bn loan, this will only reduce the EU’s interest bill and not provide additional funding to Ukraine. So Kyiv is likely to run out of cash again in the first half of 2027.
Won’t the EU just agree another loan when the €90bn runs out?
It will not be that easy. Germany and countries such as the Netherlands are hostile to EU common borrowing. They only agreed to the €90bn loan because they had no other option. What’s more, three countries – Hungary, Slovakia and the Czech Republic – opted out of the €90bn loan. It will be hard for member states to justify dipping into their own pockets again to help Ukraine when €210bn of Russian assets are available. There’s also the risk that in the meantime, some countries will get new leaders who are less sympathetic to Ukraine. For example, the far-right Rassemblement National may win next spring’s French presidential election.
Won’t moving the account damage the euro?
No. Transferring the assets is legally solid. So sovereign investors will have no reason to take their money out of euros. If they were worried, they would have removed their assets after the EU immobilised Russia’s assets in 2022 and said they would stay frozen until Moscow paid reparations - or after it tapped the interest on the assets to make a $50bn loan to Ukraine in 2024.
The biggest risk to the euro will be if Ukraine loses the war. Russia may then attack eurozone members such as the Baltic States. European countries will also have to invest vastly greater sums in defence, stretching their budgets and heaping further pressure on government bond markets. The best way to guard against these risks is to ensure Ukraine has a big enough war chest to defend itself.
Moving the accounts doesn’t get €210bn to Ukraine. How would you do that?
Moving the accounts will be like putting a loaded gun on the table. Putin will know the EU can deploy the €210bn to help Kyiv at a time and manner of its choosing. So he may make peace even before the assets are used to help Ukraine. But if he doesn’t, there are several legally valid ways to channel the cash to Kyiv.
One option would be a Reparations Loan which avoids the problems in the version that the European Commission proposed last year. A group of us set out the details here of how such a plan would work. But this is not the only alternative. The EU can choose the best way forward depending on the circumstances. The essential first step is to move the entire account out of Belgium.
POLITICS
Why should Belgium agree?
This proposal is very different from the Reparations Loan the European Commission put forward last year. The plan then was to borrow cash associated with the assets from Euroclear while leaving it with its liability to Russia. A group of us always thought this was a bad idea – and had instead proposed moving the entire account from Belgium as a first step.
Bart De Wever, the Belgian Prime Minister, said after the October European Council that he wants to get rid of the Russian account. His exact comments were: “If there is somebody who wants to take the entire Euroclear balance…. and will sign for all the risks, he can have it. That would be the happiest day – maybe not the happiest day of my career, but it would be a happy day to see that money leave Belgium. I want to get rid of it.”
Our plan does just that. It would take Euroclear out of a political knife fight. What’s more, the EU would provide an indemnity to cover any residual risk Belgium faces.
All other Russian frozen sovereign accounts in the EU would also be transferred to the new custodian, so Belgium would not be singled out for special treatment. Non-EU countries with immobilised Russian assets would also be invited to move these accounts to the new facility.
Will non-EU countries with frozen Russian assets do something similar?
There are €42bn of frozen Russian sovereign assets in non-EU countries. Under our proposed regulation, these countries would be invited to move these accounts to the new EU custodian. This follows the practice after the fall of Saddam Hussein when all Iraqi sovereign assets outside Iraq were moved to an account at the Federal Reserve Bank of New York.
Even if non-EU countries do not wish to do this, they may still deploy the frozen assets in their jurisdictions to help Ukraine. Last year the United Kingdom and Canada were ready to make Reparations Loans if the EU had taken action. The United States is unlikely to do this so long as Donald Trump is president. But after the next presidential election in 2028, America may well mobilise the frozen assets under its jurisdiction to aid Kyiv.
Won’t Donald Trump object?
Probably. After all, he has previously proposed using the frozen assets as part of a peace deal in which the United States would receive half the profits. But the EU should not be put off by Trump. While he can issue threats, his capacity to follow through on his rhetoric is fast vanishing.
Why would Vladimir Putin ever make peace?
Putin will only make peace if he thinks he is going to lose. He is not there yet. But the war is going badly for him as Ukraine fights effectively and bravely. Russia is losing about 30,000 soldiers a month and can no longer replace them. Despite that, it is barely, if at all, gaining territory. The Russian economy is also suffering from rampant inflation, stagnation, bad debts and a brain drain. While the Iran war has pushed up the price of oil, the Kremlin’s main revenue source, Moscow has not been able to benefit from this fully because Ukraine’s missiles and drones have been striking Russian refineries and export facilities. If the EU deploys the €210bn frozen assets to help Kyiv, Putin will know he cannot win just because Ukraine runs out of cash. He may then conclude that it is best to make peace.
Why shouldn’t the EU wait until the last minute, as it usually does?
It’s true that the EU often leaves things to the last minute. But that has undermined Ukraine’s war effort, forcing it to conserve military equipment in case it runs out completely. The drip-drip of money has prevented long-term planning. And the lurch from one financial crisis to another has undermined morale.
What’s more, the EU electoral cycle is like playing Russian roulette. There are 27 countries – and each could end up with a far-right leader. April’s election in Hungary got rid of Viktor Orban. This opened a window of opportunity. But there are other elections in the pipeline, notably next spring’s French presidential elections. The EU would be foolish to rely on its luck lasting. It should act now before the window of opportunity snaps shut.