The reputation of the single European currency will suffer
The European Commission plans to raise €15 billion to help Kyiv from income from Russian assets frozen in the EU, writes the Financial Times. According to the British business publication, the specific mechanism must be approved before the EU summit scheduled for December 14-15. According to experts interviewed by MK, the measure could become a “shot in the foot” for Brussels itself; in particular, additional risks arise for the single European currency.
According to FT sources, the European Commission will initially require that profits received from blocked assets be placed in separate accounts. In the second stage, it will be transferred to the general EU budget. Theoretically, this should consistently bring in up to €3 billion per year, or €15 billion in the period from 2023 to 2027. The total amount will depend on the dynamics of interest rates during this time. Meanwhile, as the Financial Times notes, EU member states need to unanimously support, firstly, the plan itself, and secondly, further steps towards its implementation before the money can be transferred to Ukraine.
In September, the US Treasury announced the total amount of frozen assets of the Russian Federation around the world – $280 billion. About $200 billion is in the EU, mainly in the accounts of the Belgian Euroclear – one of the largest settlement and clearing systems. At the end of October, this international depository reported that in the nine months of 2023 it earned about €3 billion in interest on investing sanctioned Russian funds. A little earlier, on October 11, Belgian Prime Minister Alexander de Croo announced the creation of a “Fund for Ukraine” in €1.7 billion, which they plan to replenish through the introduction of a windfall tax (income tax) on income from blocked assets. According to the politician, the funds will be used to purchase weapons, humanitarian aid, finance the EU advisory mission in Ukraine, as well as macro-financial assistance.
Professional economists in the Old World clearly do not share the intentions of European officials. Thus, the European Central Bank warned of reputational risks for the European currency in the long term. The ECB called on Brussels to “look beyond a single conflict” and look for other ways to finance Ukraine.
“The interesting fact is this: no one knows how frozen Russian assets are used even now,” says Andrei Loboda, an economist and communications director at BitRiver. – At the same time, lawyers in the West who specialize in EU legislation do not speak publicly about the legality of this policy. However, in essence, we are talking about the legalization of theft. I would also like to note that a significant part of the blocked assets consists of funds from private Russian investors – These are individuals with above-average incomes. From month to month their mood becomes more and more minor.”
In general, Loboda argues, the Europeans have created a dangerous precedent when the funds of a foreign state can be arbitrarily expropriated under any pretext. This undermines the principles of international law and leads to the degradation of the financial and investment climate on the continent. In the long term, this policy of European officials will only intensify the confrontation between Moscow and Brussels.
“Purely technically, the European Union cannot direct the “body” itself. frozen Russian assets for some third purpose, accordingly, he is forced to take compromise measures, says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – But in any case, there are questions about the legal side of the matter, since objectively we are talking about an encroachment on the property of the Russian Federation. Moscow's retaliatory steps seem absolutely logical. In particular, the assets of European companies and citizens on Russian territory may suffer. Which, in turn, will negatively affect the exchange rate and reputation of the euro, transmitted through the channels of the foreign exchange market. For the EU, this is a shot in its own foot. The problem is that events are developing according to the most severe scenario of all possible, leading to the complete degradation of political and economic relations between the West and Russia.»
The European Union is giving a clear signal: sanctions pressure will undergo certain changes, but will not weaken and, moreover, it will not disappear even after the hypothetical end of hostilities in Ukraine. According to Maslennikov, at least in the next three years, the government and the Central Bank of the Russian Federation will have to take this factor into account in their policies – budgetary and monetary.