After months of political wrangling, the European Union on Tuesday officially began a long process to fulfill its promise to use money derived from the Russian central bank’s frozen assets for the reconstruction of Ukraine.
The European Commission, the bloc’s executive arm, said it had agreed on a proposal detailing a legal way to use the interest earned and other profits from these assets, which are held in European financial institutions, for the benefit of Ukraine. But contrary to usual practice, the commission has not publicly revealed its contents, reflecting how politically complicated the plan is for many of the member countries.
The plan has the potential to provide Ukraine with up to 3 billion euros ($3.25 billion) a year, or up to 15 billion euros between 2023 and 2027, said an official involved in the process who was not authorized to speak about it publicly. . But those figures could vary depending on market conditions.
Tuesday’s proposal still has a ways to go before it can be implemented. It must be approved by the European Parliament and all 27 member states, and is expected to face resistance from some countries. France, Germany and Italy have expressed objections, according to the official, and Hungary has been blocking a separate financing mechanism for kyiv, which leaders are expected to discuss at a summit later this week.
But the attempt to free up money for Ukraine comes amid growing concern that financial support for the war effort is declining among European countries and the United States.
The commission’s plan requires financial services companies that hold frozen assets of the Russian central bank to put profits generated by them, such as interest earned, into separate accounts, according to the proposal seen by The New York Times. Member states must decide how these benefits should be directed to Ukraine, according to the proposal, opening the door to another protracted negotiation. The plan does not use the assets, the balance of which will remain intact.
The limited scope of the proposal is also an attempt to address concerns about future legal claims on the money by Russia. The proceeds “do not constitute sovereign assets and do not have to be made available to the Central Bank of Russia under applicable rules,” according to the document seen by The Times.
After Russia invaded Ukraine last year, Western nations took an unusual step by freezing more than $330 billion in Russian central bank assets abroad. But as payments to Russia have been blocked by sanctions, the cash generated from these assets has been stuck abroad, and the bulk of the sum, more than $217 billion, is frozen in the European Union. . Almost everything is in the hands of Euroclear, a financial services company in Belgium.
Euroclear has needed to invest extra money to avoid accumulating additional financial risks. In the first nine months of this year, those investments made around €3 billion in profits, according to Euroclear’s latest financial statements.
The low-key tone of Tuesday’s announcement contrasted with loud statements made earlier this year by the bloc’s top officials to “make Russia pay” for the war. But a legal proposal was delayed twice due to disagreements between member states, concerns raised by the European Central Bank and fears over Euroclear’s financial obligations.
The European Central Bank warned that the use Assets from another country’s central bank could damage the perception of Europe as a safe place to store money, and could lead countries to move away from euro-denominated assets, harming the bloc’s plan to increase international use of the euro.
Euroclear was also concerned that Russia’s legal rights to the proceeds of its assets could represent a considerable financial risk to the company.
U.S. Treasury Secretary Janet L. Yellen told Congress earlier this year that seizing Russian assets frozen in the United States would likely require a change in U.S. law.
A Treasury representative said the Biden administration had not yet determined whether it would follow Europe’s move with a tax on profits from Russian assets frozen in the United States.
“Looking ahead to additional sources of assistance, I support harnessing windfall revenues from Russian sovereign assets tied up in private clearinghouses and using the funds to support Ukraine, something the G7 has now committed to exploring.” Yellen said in Octoberin reference to the Group of 7 countries.
The European Commission, which had previously expressed concerns about moving forward on its own, felt comfortable pushing forward with the proposal after a G7 meeting last week. The group, which includes the United States and Britain, said “decisive progress” was needed to direct windfall revenues from frozen Russian assets to support Ukraine, “in accordance with applicable contractual obligations and in accordance with applicable laws.” applicable”.
“We reaffirm that, in accordance with our respective legal systems, Russia’s sovereign assets in our jurisdictions will remain frozen until Russia pays for the harm it caused to Ukraine,” read the leaders’ statement from a virtual G7 meeting in December. .
Alan Rappeport contributed reports.
