With the US and the European Union facing growing political difficulties in getting through increased military funding for the Ukraine war, a plan to seize frozen Russian financial assets of about $300 billion, which has been circulating for some time, is now coming under more active consideration.
Bank of Russia, Moscow [Photo by Ludvig14 via Wikimedia Commons / CC BY-SA 4.0]
The assets of the Russian central bank held in foreign banks and international financial institutions were frozen almost immediately after the war began in February last year, sending a shock wave through the international financial system. At that point, and in discussion since, the actual seizure was thought to be a step too far.
Earlier this year the European Central Bank (ECB) cautioned against an EU proposal to use the assets and divert them to Ukraine, and said it had to be part of a global plan involving the G7 powers.
“We have to be careful because this could lead to reputational damage,” the ECB said, “there could be implications for the euro as a safe currency.”
In an internal note at the time, the ECB warned of the risks of undermining the “legal and economic foundations” of the international role of the euro. “The implications could be substantial,” it stated.
The risk is that other countries, such as China and Saudi Arabia, which stow some of their currency reserves in euros, would consider it unsafe.
According to one EU diplomat, cited by the Financial Times (FT) when the asset seizure proposal was first under discussion earlier this year: “Every major euro-dominated economy is treading very carefully on this because of the potential effects for the euro and for foreign investment and clearing in euro.”
Opinions vary on the move, as exemplified in recent comments made to the FT.
Philip Zelikow, a former US diplomat, cited as a precedent the compensation of more than $52 billion, finally paid off at the end of last year, which was extracted from Iraq for the 1990 invasion of Kuwait.
“This represents an enormous opportunity,” he said. “We have spent nearly two years working through legal thickets and can now begin to contemplate the possibilities that may be available. If this works, the money at stake—$300 billion—would be a game-changer for Ukraine.”
An opposed view was advanced by Ingrid Brunk, a professor of international law at Vanderbilt Law School, who said the idea was “unwise.”
“Many countries have been damaged by many things that violated international law with no suggestion that we seize foreign currency assets. These are the most sacrosanct kinds of assets in the global financial system.”
Despite these reservations, there is now a concerted push from within the imperialist political establishment to go ahead.
Former British prime minister, now foreign secretary, Lord David Cameron, told a parliamentary committee earlier this month he was confident there was a “legal route” to confiscate the assets.
Cameron was basing himself on a long tradition. Back in the days when Britain ruled the colony of Ceylon, now Sri Lanka, it was said the colonial master practised “perjury by day and forgery by night.”
Cameron said he was pushing hard within the G7 for the proposal to seize the Russian assets, saying “extraordinary times require extraordinary measures.” He denied there would be a “chilling effect” of such action because investors that would likely be perturbed had already been “pretty chilled out by the fact that we have frozen.”
In the manner indicated by the Sri Lankan saying, the legal experts are getting to work.
The FT reported that while the US has not formally declared in favour of seizing the assets, it was working to have the plan go ahead. The newspaper pointed to a recent G7 discussion paper, written by US officials, which would present the seizure as a “countermeasure” permitted under international law to “induce Russia to end its aggression.”
The US paper said the asset seizure could be “pursued as a lawful countermeasure by those states that have been injured as specifically affected by Russia’s violation of the international law.”
This means the imperialist powers that have provided money for the war could get part of the Russian reserves as compensation. There is clearly a push for this to take place.
According to one Western official, cited in a recent report by the FT, there were “definitely live conversations” in the G7 and a “growing consensus” in favour of using Russian sovereign assets.
“It’s going back to the question of: Is it just up to Western citizens and treasuries to pay for the war, or should the Kremlin also be on the hook?”
Following the failure of the EU to agree on war funding, another EU diplomat said: “We need to find a way to get cash to Ukraine, in whatever form. And more countries are pointing at the assets and wondering why they are still sitting there.”
There are pressures developing on the other side of the Atlantic as well.