March 1, 2024 - 6:00am

European Commission President Ursula von der Leyen is attempting to “restart a conversation” on using profits from frozen Russian assets to support Ukraine. The important detail here is that this would not include the confiscation of the assets themselves, but would be limited to the profits they generate. The Russian Central Bank has more than €200 billion (out of €269 billion globally) frozen in European accounts, and this money is generating interest, both in the literal and financial sense. 

What might seem simple at first glance, however, is in truth a complicated geopolitical and legal issue. While the freezing of assets is acceptable under international law, seizing, for the most part, is not. Some heads of state recognise this reality: Belgium’s prime minister, Alexander De Croo, recently emphasised the need for a structural solution that does not destabilise the international financial system. Given that his country finds itself in possession of the majority of frozen Russian state assets (around €180 billion), he clearly understands better than most what is at stake.

The macroeconomic repercussions of such a step would be quite significant, making Europe a less attractive destination for international investment flows. Which is why the idea itself is not particularly new and has been floating among G7 states since October 2023. But even then, the language was vague: “We will explore how any extraordinary revenues […] from immobilized Russian sovereign assets […] could be directed to support Ukraine […]”. Given that the euro is a global reserve currency, the move could deter many countries, including India and China, from holding assets in the EU if they feel that they can be seized with relative ease.

Behind closed doors, policymakers are considering what such a move could mean for the international financial system once the war is over. Though nobody is willing to say it out loud, few Europeans would be happy with a permanent loss of future Russian assets.

There is also the more cynical possibility that all the talk about more aggressive sanctions is part of the upcoming campaign season in Europe. Ursula von der Leyen wants to run for a second term as president of the European Commission, and being tough on Russia is as much a geopolitical position as it is part of a reelection campaign. A similar game is currently being played by French President Emmanuel Macron, who recently talked about putting Western troops into Ukraine, which is probably as unlikely as the seizing of Russian assets.

Given that campaign season is only in its early days, European voters should get ready for multiple proposals from their leaders, but should not expect too much when it comes to their implementation.