MOSCOW, February 4 G7 countries and EU are discussing a plan to use frozen Russian assets as collateral to help rebuild Ukraine, Bloomberg said, citing unnamed sources.
Earlier, the British newspaper Financial Times, citing sources, reported that Western countries were developing plans to issue debt to help finance Ukraine, using Russian assets as support to repay the debt.
As Bloomberg notes, under this plan, Ukraine's allies could sell «debt» to contribute to the country's recovery, using frozen assets as collateral.
«Supporters of this decision believe that any settlement of the conflict in accordance with international law will lead to the fact that Russia will be obliged to pay damages to <…> Ukraine. In case of refusal, Russia may be subject to claims for frozen assets,” unnamed sources told the agency.
The plan could allow for the creation of a special vehicle that would issue zero-coupon bonds (they don't pay regular interest but are sold at a deep discount from face value) backed by collateral, one of the people told Bloomberg. It is noted that a “hierarchy of collateral” (liquid assets that the borrower provides to the lender as a guarantee of loan repayment) will be established. It will use assets owned by Euroclear's network of financial institutions, as well as banks.
The agency, citing sources, states that discussions on the plan are still ongoing at a technical level, and no political decision has been made yet. One of the sources told Bloomberg that some countries involved in the discussions want to «move faster» on the decision than others.
On January 29, the permanent representatives of the EU member states agreed on the European Commission's proposal on the use of income from Russian assets frozen in EU countries. As a European diplomat explained earlier, the EC proposes to store income received from frozen Russian assets in special accounts for their possible use in the future to finance Ukraine. At this stage, there is no talk of transferring these funds to the EU budget or directly to Ukraine. The mechanism for transferring funds has not yet been developed.
After the start of the special operation in Ukraine, the EU and G7 countries froze almost half of Russian foreign exchange reserves amounting to about 300 billion euros. About 200 billion euros are in the EU, mainly in the accounts of the Belgian Euroclear — one of the world's largest settlement and clearing systems. At the end of October, the international depository Euroclear reported that in the nine months of 2023 it earned about 3 billion euros in interest on investing in sanctioned Russian assets.
EU leaders last October instructed the European Commission to prepare proposals for using frozen assets to finance the reconstruction of Ukraine. Recently, against the background of a split in the EU over the agreement of 50 billion euros for macro-financial assistance to Kyiv for the period until 2027, the discussion of using income from Russian assets for these purposes has again intensified. In mid-October, Belgian Prime Minister Alexander de Croo said the kingdom was creating a €1.7 billion support fund for Ukraine using funds raised from taxation of income from frozen Russian assets. He added that Belgium plans to transfer to Ukraine “all funds received from taxation of income from Russian assets,” these funds will be used for the purchase of weapons, humanitarian aid, to finance the EU civilian mission for Ukraine, as well as macro-financial assistance.
The European Central Bank has warned that Europe's use of frozen Russian assets to finance Ukraine could pose reputational risks for the European currency in the long term. They called on Brussels to “look beyond this separate conflict” and look for other ways to finance Ukraine.
The Kremlin stated that the adoption of such decisions “would be another step in violating all the rules and norms of international law.” The Russian Foreign Ministry called the freezing of Russian assets in Europe theft, noting that the EU is targeting not just the funds of private individuals, but also the state assets of Russia. Earlier, Finance Minister Anton Siluanov said that since 2022, unfriendly Western countries have been imposing sanctions against Russia, its citizens and organizations, and the European Union and other Western countries are actively working to create legal conditions for the confiscation of frozen Russian assets, introducing external control in relation to subsidiaries of Russian companies, the property rights of Russian legal entities and individuals are illegally deprived or limited.
Russia has repeatedly stated that the country will cope with the sanctions pressure that the West began to exert several years ago and continues to intensify.