Tom Keatinge is the director of the Centre for Finance & Security at RUSI, while Kinga Redlowska leads the Centre for Finance & Security at RUSI Europe.
As the international dialogue surrounding Russia’s full-scale invasion of Ukraine progresses, it is imperative to rethink strategies to support Ukraine in its courageous defense of its territorial integrity and that of Europe.
Several complex issues must be addressed—some are genuine concerns, while others are fabricated in a manner unique to the EU and its bureaucracy. A primary concern is the fate of the immobilized Russian Central Bank assets, primarily held in euros within EU-domiciled banks.
To date, Europe’s political and financial leaders have concocted numerous excuses to defer resolving this Gordian Knot. However, as we approach negotiations, any further delays could lead to disastrous consequences.
To summarize, shortly after the Kremlin’s illegal invasion of Ukraine, the G7 made a decisive move to immobilize Russia’s foreign exchange reserves, estimated to exceed €300 billion. This action rendered these funds inaccessible to Russia, making it illegal for the banks holding them—or anyone else in the EU—to utilize them.
Following extensive discussions, in 2024, the G7 agreed that the profits generated from these assets—though not the assets themselves—could be allocated to Ukraine via Extraordinary Revenue Acceleration (ERA) Loans, totaling around €45 billion. These loans are secured against the extraordinary profits accrued from the Russian Central Bank assets, which remain immobilized in Western banks.
Thus far, this arrangement seems uncontroversial. Yet, the question arises: why can’t these assets be confiscated and awarded to Ukraine?
Over the past few years, numerous legal, financial, and parochial arguments have emerged, each with varying degrees of validity regarding this issue.
Firstly, regarding legal arguments: Central bank assets typically enjoy sovereign immunity—an argument often cited against full confiscation. However, this assertion has been firmly countered by legal experts who argue that the international law concept of “countermeasures” could apply here. This principle permits actions that would ordinarily be unlawful if they are proportionate and taken in response to another state’s wrongful conduct, thereby encouraging compliance with international obligations.
In this context, Russia’s central bank assets could be utilized to pressure the Kremlin to retract its aggressive actions and respect Ukraine’s sovereignty. A crucial aspect of countermeasures is that they must be reversible—an essential consideration for any proposed resolution.
Secondly, consider the market implications: European Central Bank President Christine Lagarde and other senior figures in the eurozone have expressed that confiscating Russia’s assets could pose “legal risks” to euro investments. This apprehension is undoubtedly influenced by the memories of the euro sovereign debt crisis from 15 years ago, leaving these financiers with a form of financial trauma, exacerbated by countries like Saudi Arabia threatening to sell euro government debt if confiscation proceeds.
However, given the markets’ indifference to the original asset freeze—arguably the most significant risk to the euro—and the limited availability of alternative high-quality assets, these fears appear unfounded. Moreover, it is not necessary to permanently confiscate these assets to bolster Ukraine’s access to them; adhering to the countermeasures principle would suffice.
Lastly, there are parochial arguments: Belgian Prime Minister Bart De Wever recently claimed that confiscating Russia’s assets would constitute “an act of war,” potentially leading to systemic risks across the global financial system and provoke Russian retaliation. However, De Wever seems to overlook that Russia is already waging an illegal war and that many Western companies have faced retaliation from Moscow. Additionally, Belgium—home to most of Russia’s assets—benefits greatly from their presence.
Overall, there are no credible justifications for Europe’s hesitance to utilize Russia’s Central Bank assets to benefit Ukraine.
While last year’s G7 decision may have sufficed during more stable transatlantic relations, the current circumstances demand a shift in Europe’s approach. The looming risk of Hungary or Slovakia vetoing the continued immobilization of these assets during the next biannual review in July heightens the urgency of the situation.
A straightforward solution exists to address all these concerns.
To mitigate the risk of Russia’s central bank assets being unfrozen and returned to the Kremlin in July, Europe must employ the countermeasures argument and render the assets inaccessible to Moscow. This could be achieved by transferring them to a newly established vehicle in Belgium, governed by EU oversight, and placing the legal title of the assets in a trust for Ukraine’s benefit. Importantly, the assets would not be handed over to Ukraine but would instead generate a consistent stream of annuity income to support its defense procurement and ongoing financial needs.
Currently, Ukraine lacks the capacity to absorb such a substantial sum at once but requires a reliable and sustainable income. This approach would fulfill the reversibility requirement inherent in the countermeasures concept, as the possibility of asset ownership reverting to Russia would remain. Additionally, establishing the vehicle in Brussels would preserve Belgium’s tax revenue.
The majority of Russian central bank assets from February 2022 were bonds that have matured, resulting in a significant amount of cash that earns minimal interest. Once transferred to the new vehicle, these assets could be actively managed, yielding much higher returns and providing a steady cash flow to support Ukraine, thereby reducing the necessity for Western allies to rely on dwindling taxpayer funds.
As the anticipated ceasefire and peace negotiations gradually unfold, these assets could also serve as the foundation for establishing a Ukraine Reconstruction Bank—similar to Germany’s Kreditanstalt für Wiederaufbau, which was created to finance the nation’s reconstruction post-World War II.
As discussions continue in Brussels and among member states, the EU’s inertia and lack of foresight increasingly put it at risk of squandering victory. With the imminent immobilization renewal deadline in July approaching, the urgency intensifies. Yet, a clear solution exists for every excuse—what is truly lacking is the political resolve to act.
This attitude must change before the EU’s indecision leads to catastrophic consequences.
