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EU Economy Chief Open to Confiscating Frozen Russian Assets

Valdis Dombrovskis in Brussels, on Dec. 19. Photographer: Simon Wohlfahrt/Bloomberg (Simon Wohlfahrt/Bloomberg)

(Bloomberg) -- The European Union should consider taking bolder steps such as confiscating frozen Russian central bank assets to compensate Ukraine, the bloc’s top economic official said, downplaying risk warnings from the European Central Bank.

“We certainly must explore and work on all options,” Economy Commissioner Valdis Dombrovskis said Thursday in an interview. “There is an established principle under international law that the aggressor is liable for the damage which it’s creating, so we must find ways how to make Russia pay for the damage it is creating in Ukraine.”

The EU’s diplomatic service is conducting fresh assessments of the financial and economic risk of confiscating Russian assets and hand them over to Ukraine, Bloomberg previously reported. The discussion has new momentum as the bloc confronts the risk of a drawdown or cutoff of US aid to Kyiv once Donald Trump is inaugurated. 

Up to now, the EU and the Group of Seven nations have tapped the profits generated by some $300 billion in sanctioned Russian assets to provide aid to Ukraine. Under a G-7 plan, Kyiv’s allies approved a mechanism where the profits would be used to underpin a €50 billion ($52.5 billion) loan package for Kyiv.

Euroclear Ltd., a Brussels-based clearing house, holds the largest tranche of Russia’s immobilized deposits, totaling €180 billion. Valerie Urbain, its chief executive officer, has warned that confiscating assets would be risky.

Several member states, including Germany, Belgium and Luxembourg, and the ECB remain concerned that confiscation could breach the principle of a state’s immunity under international law and impact the euro as a reserve currency, as well as the euro area’s financial stability.

Dombrovskis argued that any option must be “legally solid” to withstand potential judicial scrutiny as he downplayed the risks to financial stability.

“We already took an important step when we immobilized those assets, and also then there was a question on financial stability or implications for the euro,” he said. “But we see that those financial stability risks did not materialize.”

The EU is already one of the largest donors to Ukraine, including a €50 billion package for the 2024-2027 period that is separate from the G-7-backed loan. 

Russia’s invasion of Ukraine has prompted a broader discussion within the EU over boosting its military preparedness and how to increase its military spending.

The European Commission and some member states are discussing ways to help member states finance their defense build-ups. Some countries including Estonia and France have proposed joint borrowing to cover the military gaps after decades of under investment due to the reliance on the NATO umbrella, but others like Germany and the Netherlands remain opposed.

Dombrovskis, a former Latvian prime minister, said that the EU needs to explore new instruments before its next long-term budget, which is set to begin in 2028.

“It’s clear that we need to be ambitious in strengthening our defense capacities and find the right funding tools at the EU and national level, because security threat is real,” he said. “Especially in a context where the Trump administration’s commitment to this is relatively unpredictable.”

©2024 Bloomberg L.P.