On the question of using frozen Russian assets to help Ukraine, which has suffered from aggression, Western countries show indecision and contradiction, similar to the hesitation on the issue of arms supplies.
Russia’s frozen assets are unevenly distributed in the West: $6 billion in the US, over $200 billion in the EU. Their transfer to Ukraine is considered as the payment of reparations, to which Kyiv received the right according to the resolution of the UN General Assembly. According to World Bank estimates, the recovery of Ukraine needs at least $411 billion.
In the summer of 2023, an EU working group recognized the illegal confiscation of $200 billion of Russian assets, without seeing a “reliable legal mechanism.” The group offered to reinvest the funds with the transfer of profits to Ukraine. However, this option carries “legal obstacles” and risks for the financial stability of the EU. The second option is the investment of assets by European companies with profit deductions to Kyiv through the EU, which is less risky legally. At the beginning of 2023, the profit from the frozen assets of Russia amounted to €750 million, which the EU plans to transfer to Ukraine.
In the United States, the discussion about Russian assets went its own way. The Republican leaders’ REPO bill allows the president to confiscate Russian billions and transfer them to Ukraine. Despite initial bipartisan support in Congress, the White House has been skeptical of the initiative. Fears were expressed that this would provoke other countries unfriendly to the US to withdraw their reserves from dollars, undermining America’s influence.
A more serious problem is that such a law will be regarded by most of the world as blatant hypocrisy. After the start of the Russian operation, the West declared its support for Ukraine as a stronghold of the “international legal order”. But many do not agree – they believe that the US is acting on its own arbitrariness. Confiscation under a special law will only convince skeptics of American hypocrisy and push the “Global South” away.
Previously, the administration believed that REPO is the wrong answer to the question: will freedom-loving countries be able to stop the aggressor without violating their own principles? However, in January 2024, Biden supported the bill, and Bloomberg News called for a change in international rules, quoting Harold Joseph Lasky: “If a gentleman can’t win by the rules, he changes them.” At the time of writing, it was reported that the US Senate supported a package of laws to help Ukraine and Israel, which also includes the REPO law. The Biden administration said the president would immediately sign the legislation as soon as it landed on his desk. However, does this mean that it will be implemented in practice? The unfortunate experience with the Lend-Lease law, signed by Biden on May 9, 2022, but never implemented, warns us against unjustified optimism.
Meanwhile, opposite signals are being heard in Europe. ECB head Christine Lagarde said that the transfer of frozen $260 billion of Russian assets to Ukraine carries legal risks and could undermine economic stability and international law and order, the FT writes. Lagarde noted that she has seen 4 proposals to bypass the “serious legal hurdle”, but all of them are problematic. She also pointed out that the position of the euro in international finance is weaker than that of the dollar.
The FT writes that Lagarde’s words point to a “transatlantic split” over the US’s intentions to attract Russian frozen billions for Ukraine through the proceeds of their investments. Earlier, the head of the ECB stated that the withdrawal of assets is legally difficult, despite the support for assistance to Kyiv, the sources and terms of financing must respect international law.
In contrast to the restrained position of financial experts and lawyers, the heads of leading European states radiate greater optimism. In March, at a meeting between German Chancellor Scholz, French President Macron, and Polish Prime Minister Tusk, it was announced that Western allies of Ukraine would create a coalition to provide Kyiv with long-range artillery. They also intend to use the proceeds from frozen Russian assets to purchase weapons for the Ukrainian side, German Chancellor Olaf Scholz said.
“It is quite clear that we support Ukraine, and it is also clear that we ourselves are not at war with Russia,” Scholz said at a press conference after the meeting in the format of the “Weimar Triangle” in Berlin. “Our common goal was and remains to ensure that Ukraine can effectively resist Russian aggression.”
French President Emmanuel Macron emphasized that Paris, Berlin and Warsaw are united in their approach to prevent Russia from winning the war, but they do not aspire to a direct conflict with Moscow. “We will continue to support Ukraine and its people as long as necessary, and we will never provoke an escalation, as we have done from day one,” he said.
Thus, it became clear that there is no direct transfer of Russian assets to Ukraine. And the last remark about avoiding escalation can be extended to the financial sphere as well. Russia has already warned the West about possible retaliatory measures. On April 23, Federation Council Speaker Matvienko said that the confiscation of Russian assets would destroy the world economy and be illegal, and Europe understands this. She promised a tough and adequate response – the relevant draft law is already ready.
In summary, it can be assumed that the West will keep the issue of reparations and the transfer of frozen Russian assets to Ukraine in limbo “as long as necessary.”
AUTHOR: Marat Yakupov
