Europe’s hesitation to seize Russian assets for Ukraine’s financial needs is a complicated matter

Three years of conflict in Ukraine have imposed a significant financial burden on Europe, amounting to nearly $122 billion in direct aid, in addition to billions invested in the continent’s military and defense sectors.

Despite this, the region has yet to utilize the $229 billion in Russian central bank assets that are currently frozen within the European Union, a consequence of Vladimir Putin’s full-scale invasion of Ukraine in 2022.

Recently, French lawmakers approved a non-binding resolution urging their government to utilize these frozen Russian assets to “support military efforts in Ukraine and aid in its reconstruction,” specifically advocating for the use of the assets themselves rather than merely the interest accrued.

Both the United States and Canada have already enacted legislation allowing for the confiscation of frozen Russian assets. In its final days, the Biden administration also sought to encourage European allies to seize these immobilized funds.

Progress was made last week when the European Parliament reached an agreement on a resolution to appropriate frozen Russian assets for Ukraine’s “defense and reconstruction.” However, the resolution has yet to be voted on by the parliament’s members.

The EU is currently leveraging the interest generated from these frozen assets to support multi-billion-dollar loans to Ukraine. Nevertheless, European governments remain cautious about seizing the principal amount. As UK Prime Minister Keir Starmer remarked on March 15, it is a “complicated issue.”

Cash Reserves at Stake

The issues at hand are both economic and legal in nature.

French government spokesperson Sophie Primas emphasized to reporters last Wednesday that the government will not engage with Russian assets, cautioning that such actions could create a perilous precedent that might deter foreign investment in Europe, even as they explore legal options to utilize the funds.

The argument suggests that a nation like China may hesitate to invest in Europe, knowing it could face sanctions if it were to invade Taiwan.

For years, Russia has been relocating its official funds away from the United States, likely due to concerns about potential consequences stemming from its actions in Ukraine and Georgia.

There is historical precedent for similar actions by the US, which seized German assets after World War II, as well as assets from Afghanistan and Iraq, noted Professor Olena Havrylchyk, an economist at the Panthéon-Sorbonne University in Paris, adding that Moscow has not shared the same apprehensions regarding Europe.

In recent years, central banks in Europe have voiced concerns—albeit in diplomatic terms—that confiscating foreign assets could negatively impact the euro’s status as a reserve currency, according to Havrylchyk in an interview with CNN.

However, ongoing support for Ukraine will continue to impose financial burdens on Europe, and the interest generated from Russia’s assets will not suffice.

Havrylchyk pointed out that European taxpayers must be prepared to accept this reality if the outright seizure of Russian funds is not a viable option.

Havrylchyk asserts that a nuclear-armed Russia is unlikely to consent to reparations as part of any peace agreement, indicating that Kyiv’s prospects for compensation should rely on funds already held by Western nations.

“The world is not governed solely by economic principles,” she remarked. “International law prioritizes justice over mere property rights.”

Legal Concerns

Europe’s reluctance to seize, rather than merely freeze, Russian assets is rooted in a fundamental tenet of international law: the protection of a state’s foreign assets from confiscation.

According to Frédéric Dopagne, a professor of public international law at the University of Louvain in Belgium, the rationale for seizing Russia’s assets is crucial. He noted that reparations for the damage Russia has inflicted on Ukraine, along with strengthening Ukraine’s defense capabilities against further aggression, represent the most compelling legal arguments Europe could present.

When the US enacted the 2024 bipartisan Rebuilding Economic Prosperity and Opportunity for Ukrainians Act, it justified the seizure of Russian assets within the US by stating that these funds would be allocated for Ukraine’s reconstruction. Additionally, French lawmakers who discussed a non-binding resolution last Wednesday approved an amendment that explicitly excluded the use of Russian assets for financing Europe’s defense initiatives.

Approximately two-thirds of all frozen Russian assets are held within the EU, making the stakes—and potential advantages—significantly greater for European governments compared to their American counterparts.

Dopagne from the University of Louvain noted that Europe’s reluctance stems in part from a lack of historical examples.

Following World Wars I and II, Germany was obligated to pay reparations through international agreements. However, with a ceasefire currently unattainable for Moscow, any post-war settlement with Russia seems far off, according to Dopagne.

This raises a critical question for Western leaders regarding Ukraine: “Is it feasible to discuss reparations before establishing a peace treaty?” Dopagne remarked.

“It would be unprecedented,” he continued, although it cannot be entirely dismissed.

Need for Unanimous Agreement

The discussions surrounding this issue have not yet gained sufficient momentum.

Countries like Belgium, which possesses the majority of frozen Russian funds (approximately $193 billion, as reported by the Institute of Legislative Ideas, a Ukrainian think tank), remain skeptical. Support from major economies such as Germany would be crucial for wider European consensus.

Any action taken by the EU would almost certainly necessitate unanimous agreement from all member states, a challenging outcome given the pro-Russian sentiments in the Hungarian and Slovak governments.

Officials in the Biden administration had anticipated leveraging Russia’s frozen assets as a bargaining chip in peace talks, compelling Putin to negotiate. However, with Donald Trump’s warm gestures towards Moscow and the initial steps towards a peace agreement after three years of conflict, a European seizure of Russian funds is more likely to hinder rather than facilitate negotiations.

For the time being, Moscow’s financial reserves appear to remain securely out of reach for Europe.