The European Union has ventured into a contentious decision-making process regarding the interest earned on Russian sovereign funds that the bloc froze in response to the ongoing conflict in Ukraine.
In February 2022, both the EU and the US jointly froze an estimated $300 billion in assets linked to the Russian Central Bank, primarily held by the Brussels-based clearinghouse Euroclear. On Monday, the European Council issued an order specifically targeting depositors with €1 million ($1.08 million) or more in Russian Central Bank assets. These individuals are now required to maintain separate accounts for “extraordinary cash balances” resulting from EU restrictive measures and are prohibited from disposing of any interest or profits derived from the frozen assets.
The Council’s decision is seen as a precursor to potentially establishing a financial contribution to the EU budget, derived from the net profits on these frozen assets, aimed at supporting Ukraine’s recovery and reconstruction in the future, according to a statement from the Council.
Russia has vehemently opposed the sanctions imposed by the US and the EU, labeling them as illegal. Moscow warned that any attempt to outright seize the frozen funds would be considered theft and would be met with a reciprocal response. Russian bankers have further cautioned that such actions could erode global confidence in the rule of law in the West, potentially triggering a run on European and US banks as they may no longer be perceived as safe.
While the US has been vocal in advocating for the confiscation of frozen funds to benefit Ukraine, the EU stands to face significant consequences from potential Russian retaliation. Euroclear alone holds €196.6 billion ($211 billion) in frozen Russian assets, accumulating nearly €4.4 billion in interest over the past year.
In response to reports suggesting Brussels might move to seize the interest, the Russian Foreign Ministry accused the EU of creating fraudulent schemes for the “outright theft” of income from Russian assets, aiming to mask attacks on Russian property under the guise of legitimacy.
Internally, the EU has faced skepticism about the confiscation proposal. Hungarian Foreign Minister Peter Szijjarto expressed discomfort, likening the move to “communist heritage” last week. The decision raises questions about the economic and diplomatic repercussions within the EU and its relationship with Russia.