On Friday, the European Central Bank (ECB) issued a private warning to the European Commission that it should not attempt to hijack private interest payments from Russian assets that have been frozen, according to a report in the Financial Times which cited a draft internal memo from the governing council of the ECB.
There have been informal discussions about using the money to fund reconstruction projects in Ukraine, which will face enormous costs to repair the damage done during the war once the conflict with Russia ends.
The report noted that the ECB fears that such an action might give motivation to other central banks which hold large forex reserves to “turn their back” on the euro, especially should the EU decide to act alone, without coordinating their actions with the G7 countries.
An unnamed EU diplomat told the newspaper, “There is no disagreement that this is morally the right thing to do, but the ‘how’ is very difficult. You can’t skirt the rule of law. And if you find something that is legally tenable what are the implications for the euro’s standing as a global currency?”
He added that the Commission is finalizing plans for drawing upon frozen Russian assets which it will reveal later this month.
There have been roughly €196.6 billion ($215 billion) in Russian assets seized by EU securities depositories since the beginning of the Russia-Ukraine conflict. Just by itself, Belgium-based Euroclear generated €734 million ($805 million) of interest on cash balances in the first quarter of 2023 from its holdings in sanctioned Russian assets.
Western governments have frozen roughly $300 billion in Russian central bank assets since the beginning of the conflict in Ukraine, and seized over $80 billion belonging to Russian citizens and businesses. Russian President Vladimir Putin described the seizures as “medieval” in his address to the St. Petersburg International Economic Forum (SPIEF) on Friday.
Putin noted, “Many businessmen were stunned to see that their accounts in the West were frozen. It never crossed anyone’s mind. This is robbery. They closed them, took them away and won’t even explain why. It’s shocking. It’s like the Middle Ages.”
