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Wednesday, June 12, 2024

Frozen Russian assets can help rebuild Ukraine

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Frozen Russian assets held in European accounts generate billions of dollars in interest earnings. They can be directed to help Ukraine, for example in rebuilding the economy destroyed by the war. The European Union has just taken a step that makes such a solution possible, CNN reports.

After the attack Russia on Ukraine in February 2022, Western countries froze almost half of foreign assets originating from Moscow – about 300 billion euros. About EUR 200 billion was invested in the European Union – mainly in Euroclear, a financial institution that ensures asset security for banks, stock exchanges and investors.

EU leaders agreed on Thursday a key financing package for Ukraine worth €50 billion and moved closer to finalizing a plan to use profits accumulating in Euroclear accounts.

In a statement issued at the end of the summit, EU leaders said that “potential revenues may be generated… from the use of extraordinary revenues held by private entities originating directly from the immobilized assets of the Central Bank of Russia.”

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Sanctions froze funds

Belgian company Euroclear revealed on Thursday that it earned €5.2 billion in interest on income generated by Russian assets that have been under sanctions since they were frozen by the EU and G7 in 2022.

“The number of sanctions and counter-sanctions introduced since February 2022 is unprecedented and continues to have a significant impact on Euroclear’s daily operations,” the group said in a statement.

European Union and its allies are determined to include Russia in Ukraine’s colossal reconstruction bill, estimated a year ago by the World Bank at $411 billion over the next decade.

One of the European Commission’s proposals involves using a special levy to collect windfall interest income, which would then be paid to the EU budget for the reconstruction of Ukraine.

The effect of a Russian missile and drone strike in Ukraine.SERGEY DOLZHENKO/PAP/EPA

The plan has been delayed for legal and financial reasons, with some EU member states and the European Central Bank concerned that even carefully targeted measures could conflict with international law and undermine confidence in the euro as the world’s second-largest reserve currency. The EU sought to counter the illegality of Russia’s invasion through its own strict adherence to the rule of law.

As one EU diplomat told CNN, EU member states have agreed in principle to use this windfall interest income, although the details of the practical implementation still need to be worked out. Lawyers are working on the text of the agreement before it is presented to EU member states for final approval.

Interest on Russian money is rising

In its profit and loss statement, Euroclear – which settles cross-border transactions and hedges assets worth around 40 trillion euros – said it was focused on “minimizing potential legal and operational risks” that could arise from EU officials’ proposal to transfer money to Ukraine .

Euroclear said its balance sheet increased by 38 billion euros year-on-year to 162 billion euros, helped by payments related to frozen Russian assets, including bonds. These payments include, for example, interest paid on bonds, or proceeds generated by securities that have expired and are reinvested.

Under normal circumstances, these payments would have been made to Russian bank accounts, but they have been blocked by sanctions and are generating huge amounts of interest – even more so given the recent wave interest rate increases.

As CNN notes, Euroclear is currently embroiled in several sanctions-related legal proceedings – almost exclusively in Russian courts – as plaintiffs seek to gain access to assets blocked from its books. The company said it continues to retain profits related to these assets “until further guidance is issued regarding the distribution or management of such profits.”

Main photo source: PAP/EPA/STATE EMERGENCY SERVICE HANDOUT HANDOUT



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