United States and Europe could breach and set a dangerous precedent, experts say. The United States are even ready to change their laws.
The United States and Europe have wrestled for months with the question of how to pay for Ukraine’s reconstruction from the war, …the estimated costs have swelled to $500 billion, with some experts citing numbers as high as $1 trillion, notes The New York Times.
One solution seemed brilliant in its simplicity: What better way to foot the bill, and to make a moral point, than to make Russia pay?
But that has proved far more difficult than first imagined, and it appears less and less likely. Experts warn that it would likely violate international law and potentially set a dangerous precedent for countries to take the assets of others.
The money once seemed easily within reach — since the beginning of the Russian invasion, Western nations have frozen more than $330 billion in Russian Central Bank assets held abroad.
Leaders of the Group of 7 nations, the world’s biggest economies, said this month that the frozen assets “will remain immobilized until Russia pays for the damage it has caused to Ukraine.” But they recognized “the need for the establishment of an international mechanism for reparation of damages…
With the bulk of the sum, over $217 billion, frozen in the European Union, the bloc’s top official, Ursula von der Leyen, promised last month during a conference devoted to Ukraine’s reconstruction to present “by the summer break” a legal way to use those Russian assets for Ukraine’s benefit.
But her declaration caused uneasiness among bloc officials and diplomats who have been involved in months of discussions over the idea and found it increasingly complicated.
Experts said that seizing Russian state assets outright carried significant legal and financial risks.
Under international law, the assets could be seized through a vote in the United Nations Security Council, a ruling of the International Court of Justice or a postwar deal. None of those options seem very likely.
Russia, a Security Council member, would veto any vote there. No deal can be achieved while the war is still going on. And no case has been brought before the court, and if it were, international law argues against confiscating the Russian Central Bank’s assets, an act that would be a breach of its sovereignty, legal experts said.
In the United States, Treasury Secretary Janet Yellen told Congress last month that confiscating Russian assets frozen in the United States would probably require a change to American law.
European officials assessed in a confidential report, seen by The New York Times, that there was “no credible legal avenue allowing for the confiscation of frozen or immobilized assets on the sole basis of these assets being under E.U. restrictive measures.”
Most of the frozen assets are held by Euroclear, a large Brussels-based financial services company that is a critical part of the plumbing of financial markets and deals with international transactions and safekeeping of assets for central banks and global commercial banks.
Under normal circumstances, the company would decide what to do with that money. But given the uncertainties generated by the war, the company’s board said it had decided to set those profits aside.
Euroclear said it was concerned with minimizing “potential legal, technical and operational risks” that could come from the Commission’s proposals.
Euroclear officials worry about damaging the euro’s reputation and sending a signal to foreign investors that their money is not safe in Europe.
Without international coordination, investors could turn to other regions and currencies, such as the United States dollar or Chinese renminbi, to place their money.
An internal report drafted last month by European officials, and seen by The Times, listed the European Central Bank’s concerns. “The implications could be substantial,” the report said. “It may lead to a diversification of reserves away from euro-denominated assets, increase of financing costs for European sovereigns and lead to trade diversification.”