G7 says full confiscation of Russian assets no longer on the table, seeks alternatives - FT
Kyiv • UNN
Despite Ukraine's insistence, the G7 countries reportedly no longer have the idea of full confiscation of frozen Russian assets on the table, instead exploring alternative ways to obtain funds from these assets to support Ukraine.
Representatives of the Group of Seven (G7) countries privately say that the idea of full confiscation of frozen Russian assets is no longer on the agenda, instead they are looking for alternative ways to get money from these assets, reports Financial Times, UNN writes.
Details
The issue of frozen Russian assets, according to the newspaper, is splitting the club of developed economies. The Biden administration has supported calls for confiscation, as has Canada and some members of the UK government, especially its foreign secretary, Lord David Cameron. Meanwhile, Japan, France, Germany, Italy - and the EU itself - remain very cautious, leading to a deadlock, the newspaper points out.
Some of the most visible skeptics, as noted, are the heads of the G7 central banks, who are aware of the stabilizing role played by foreign exchange reserves. European Central Bank President Christine Lagarde has warned that "moving from freezing assets to confiscating them and disposing of them (could carry the risk of) disrupting the international order that you want to protect; that you would like Russia to respect.
Speaking in February, Italian Finance Minister Giancarlo Giorgetti, who holds the G7 presidency this year, said it would be "difficult and complicated" to find a legal basis for confiscating Russian state assets. His French counterpart, Bruno Le Maire, was even more blunt, arguing that the legal basis simply does not exist.
Countries such as Indonesia and Saudi Arabia are lobbying EU capitals not to confiscate the assets, officials say, fearing for the future of their own reserves held in the West. "They are very concerned," says one European official, adding that their main concern is: "Is our money still safe there?"
However, the United States argues that there is a legal basis for full asset forfeiture as a legitimate counter to Russia's war of aggression. They have tried to convince others that the G7 countries have been "particularly affected" by Russia's illegal invasion, including through the impact on their economies, and therefore can act to force Moscow to stop its aggression.
The foreign aid package passed by Congress last week gives the Biden administration the right to seize Russian assets held in the United States, paving the way for confiscation.
But Europeans point out that it is easier for the United States to take a tough stance because America owns only $5 billion in Russian state assets. "They have little skin in the game," said one European diplomat.
China, which has opposed Western plans to impose "unilateral sanctions" on Moscow, is concerned about the credibility of the international financial system if frozen assets are mobilized, says Cui Hongjian, a professor at the Academy of Regional and Global Governance in Beijing.
"This will probably send a signal to China to try to provide more guarantees for its assets abroad," said Cui, a former director of a think tank affiliated with China's foreign ministry. - "It will also possibly spur a discussion in China about internationalizing the yuan.
While Ukraine continues to push for the full confiscation of Russian assets, G7 representatives privately say that this is no longer on the table. Instead, they are looking for alternative ways to obtain funds from frozen assets
One idea proposed in February by Belgium, which holds about 190 billion euros in reserves for the Russian central bank in Euroclear, was to use these reserves as collateral for debt obligations to help Ukraine. According to this plan, the G7 would set up a special company that would issue debt in Russia's name, and the collateral would be called in only when the debt reaches maturity.
But after it initially gained popularity - US Treasury Secretary Janet Yellen touted it as an option - the Belgian plan was scrapped, the publication writes. The idea would have left the responsibility for any resulting legal claims to Euroclear, which argues that the plan is fraught with the same problems as full confiscation, the paper notes.
It is pointed out that European countries want to stay away from anything that seems to involve the assets themselves for fear of "retaliation.
To avoid this, the White House, the newspaper writes, is putting forward a new idea that it hopes will get the support of G7 leaders in June. It is to free up about $50 billion in financing for Ukraine through a loan or bond secured by future profits from frozen assets, explains Dalip Singh, deputy national security adviser to the US president.
But the EU, as noted, has a different plan for the money. According to EU proposals to be adopted in the coming weeks, most of the present and future profits from Russian assets held by Euroclear will be used mainly for the joint purchase of weapons for Ukraine. All profits earned by mid-February will be retained by Euroclear as a buffer against legal costs and risks.
But the EU plan, which requires the consensus of all 27 member states, would generate approximately €3 billion a year, depending on interest rate movements.
However, according to the White House's plan, these profits will be taken upfront as soon as possible with the aim of transferring tens of billions of dollars to Ukraine shortly after any potential deal is agreed upon at the upcoming G7 summit, the newspaper notes.
The problem with this plan for Europe, it is noted, is what happens if the war ends in the near future. The debt would have to be secured by state guarantees or by Russian assets themselves - something that could be "complicated and expensive," says one EU official.
Eurozone officials are also deeply wary of anything that could negatively affect the euro's hard-won gains as a global reserve currency, the publication points out.
According to European officials, some countries hope that the recently approved U.S. aid package will ease the pressure to use Russian assets now that Kyiv is on a more stable financial footing.
But the White House's Singh rejects this view, warning that decisions made by the G7 in the short term "have generational implications.
There are risks in mobilizing reserves, he admits. But the alternative is "the risk that Ukraine will not receive sufficient funding, and one of the most egregious violations of international law in recent history will go unpunished.
