Von Der Leyen is ready to use the frozen Russian funds

Despite concerns about the legitimacy of the act, the European Commission will this week present a proposal on how Europeans could use frozen Russian funds. This is not about access to the assets themselves, but only to the interest and investment profits generated by them, so-called “windfall profits,” as reported by Handelsblatt. However, this is also considered a taboo break among central bankers and can cause huge problems in international financial relations.

The warnings from the European Central Bank (ECB)) could not be clearer on the matter. For months, the clear message from Frankfurt has been: if the EU were to access the frozen reserves of the Russian central bank, this could permanently damage the Eurozone’s reputation as a safe haven among international investors and would break a line that has never been crossed in international financial relations.

After the Russian attack on Ukraine two years ago, Western states froze 260 billion euros in Russian central bank reserves. About 200 billion of them are deposited at the Belgian clearing house Euroclear. Interest and investment profits accrue daily on the capital, which amounted to 4.4 billion euros last year. Euroclear is a kind of oasis for capital, a clearing house where private and public securities transactions are settled, and deposits are only instrumental to the realization of these transfers. Treating it as an ordinary bank handling deposits would jeopardize its status as a clearinghouse.

According to the EU’s legal interpretation, these profits do not belong to the Russian state, as they result only from the fact that reserves cannot be moved because of Russian sanctions. Access to these extraordinary revenues would therefore not violate the principle of state immunity, according to the logic of EU jurists. Of course, the Russians, or any other jurists, would say that the very fact that they cannot move these funds generates these interests that the Russian Central Bank is owed, so they are all the more owed because they are linked to the sanctions.

As the Handelsblatt learned from Commission circles, the authority now wants to find a legally clean way to use these funds for Ukraine. As a first step, EU states decided in January to park the profits in a blocked account.

The clearinghouses were instructed to separate the money and no longer report the value of the profits from the deposits at the CA clearinghouse. Now the second step follows surprisingly quickly, namely the procedure on how to access it. From the point of view of international law, this will be a real atom bomb.