What exactly is the EU planning to do with Russia's frozen assets?

The EU does not plan to seize the principal amount of the frozen Russian sovereign assets (around €260 billion). Instead, it intends to take the "windfall profits"—such as interest payments and other earnings—generated by these assets since they were immobilized. These profits, estimated at several billion euros per year, would be transferred to a fund to provide military and financial support to Ukraine.

How has Russia's central bank reacted to this plan?

Russia's central bank has declared the EU's plan to be "illegal" and a form of "theft." It has stated that this action violates fundamental principles of international law regarding sovereign immunity. The bank has vowed to use all available legal and retaliatory measures to protect its assets and interests. This includes filing lawsuits, such as the one already initiated against the financial depository Euroclear.

Is it legal for the EU to seize these profits?

The legality is highly contested. Proponents of the plan argue that it is a legitimate countermeasure against Russia's illegal aggression and that seizing unexpected windfall profits is legally distinct from seizing the assets themselves. However, opponents, including some financial experts, argue that it violates international norms of sovereign immunity and property rights. They warn it could set a dangerous precedent, making other countries reluctant to hold their reserves in Western currencies.

Where are these frozen assets located?

The vast majority of the frozen Russian assets, estimated to be over €200 billion, are held in the European Union. A significant portion of these funds is located at Euroclear, a major securities depository based in Brussels, Belgium. The concentration of assets in one jurisdiction has made Euroclear central to the entire debate and a target of Russian legal action.

What are the potential risks of this action for the global economy?

The primary risk is the potential erosion of trust in the international financial system. If countries believe their sovereign assets held abroad are not safe from seizure during political disputes, they may diversify their reserves away from the Euro and the US Dollar. This could weaken the status of these leading reserve currencies, potentially leading to global financial instability. Another significant risk is direct retaliation from Russia, which could seize Western corporate assets still located within its borders, leading to major losses for international companies.

Has the United States taken a similar stance?

The United States has been more aggressive in its stance, with some policymakers advocating for the outright seizure of the entire principal of the frozen assets, not just the profits. The G7 nations are actively discussing the issue, but there is a clear divergence between the more assertive US position and the more cautious European approach. Europe's caution stems from the fact that it holds the vast majority of the assets and would be more exposed to legal challenges and economic fallout.

Russia Hits Back at EU Plan to Use Frozen Assets, Calling it "Illegal"

In a significant escalation of economic tensions, Russia's central bank has vehemently condemned the European Union's plan to utilize profits from frozen Russian sovereign assets to aid Ukraine. Labelling the proposal a "theft" and a flagrant violation of international law, Moscow has vowed to take all necessary measures to protect its interests, setting the stage for a complex legal and financial battle with far-reaching consequences.

The standoff centers on approximately €260 billion ($280 billion) in Russian central bank assets that were immobilized by G7 nations, the EU, and Australia following the 2022 invasion of Ukraine. The vast majority of these funds are held within the European Union.

The EU's Precedent-Setting Proposal

For months, Western allies have debated how to leverage these frozen assets to support Ukraine's war effort and eventual reconstruction. The United States has advocated for the outright seizure of the assets, but European officials have been more cautious, fearing the legal repercussions and potential damage to the Euro's stability.

As a compromise, the European Commission has put forward a plan to target the windfall profits generated by these assets, rather than the principal itself. The proposal involves two key steps:

Indefinite Freeze : EU governments have agreed to freeze the Russian assets indefinitely. This is a crucial procedural step that replaces the previous requirement to renew the freeze every six months, solidifying the legal basis for long-term action.
Seizing the Profits : The plan is to legally separate the extraordinary profits generated by the immobilized assets and transfer them to a dedicated fund for Ukraine. It's estimated these assets could generate around €3 billion annually. These funds would primarily be used to supply military aid and support Ukraine's defense industry.

Most of the assets are held by Euroclear, a Brussels-based financial depository. The interest and profits generated from these Russian securities have been accumulating at Euroclear, creating a substantial windfall that the EU now intends to divert.

Russia's Response: A Vow of Retaliation

Russia's reaction has been swift and uncompromising. The Central Bank of Russia issued a statement declaring the EU's plans illegal and asserting it would use "all available means to protect its interests."

Moscow's key arguments are:

Violation of Sovereignty : The assets are sovereign property, protected under international law. Seizing them, or the profits from them, sets a dangerous precedent.
Undermining Financial Norms : Such an action erodes the trust that underpins the global financial system, where central banks hold reserves in foreign currencies.
Threat of Retaliation : Russian officials have made it clear they will respond in kind. This could involve confiscating the assets of Western companies and individuals still held in Russia.

In a concrete step, Russia’s Central Bank announced it has already filed a lawsuit against Euroclear in a Moscow court, accusing the depository of unlawfully blocking access to its funds.

What Are Frozen Sovereign Assets?

Sovereign assets are funds and property owned by a country’s government, typically held by its central bank. These include foreign currency reserves, gold, and other securities. When assets are “frozen,” it means the owning country cannot access or move them. However, the assets continue to legally belong to that country and can generate interest and profits, which is the money the EU is now targeting.

The Legal and Economic Battlefield

The legality of the EU's proposal is a subject of intense debate among international law experts.

Arguments for the EU's Plan	Arguments Against the EU's Plan
It's a "windfall," not seizure. Proponents argue they are not touching the principal asset, only the unexpected profits generated after they were frozen.	It's a violation of property rights. Critics contend that profits are intrinsically linked to the underlying asset and cannot be legally separated and seized.
It's a legitimate countermeasure. The action is framed as a response to Russia's illegal invasion of Ukraine and its obligation to pay reparations.	It sets a dangerous precedent. Other countries may become hesitant to hold reserves in Euros or Dollars, fearing their assets could be seized in future political disputes.
It's targeted and specific. The plan is carefully designed to apply only to the profits of immobilized Russian state assets, not private funds.	It invites mirror-image retaliation. Russia could seize Western private assets, leading to a tit-for-tat escalation that harms global investment.

Many financial leaders, including Christine Lagarde, President of the European Central Bank, have urged caution. They warn that moving from freezing assets to confiscating revenue could "break the international order you want to protect."

Potential Economic Fallout

The move to seize profits from sovereign assets, while popular politically, carries significant risks. It could lead to a fragmentation of the global financial system. Nations outside the Western alliance, such as China, may accelerate efforts to de-dollarize and find alternative reserve currencies, potentially weakening the dominance of the Euro and the US Dollar in the long term. This could lead to higher borrowing costs and financial instability globally.

Future Outlook: An Uncharted Territory

The EU's decision to indefinitely freeze Russia's assets has paved the way for the next phase: finalizing the legal mechanism to transfer the profits to Ukraine. While the bloc appears determined to proceed, Russia's threats of legal challenges and symmetrical retaliation cannot be dismissed.

The world is watching this standoff closely. If the EU succeeds without major economic blowback, it could create a new tool in the arsenal of economic statecraft. However, if Russia's warnings prove true, it could trigger a new wave of financial instability and deepen the divide between global economic blocs. The coming months will be critical in determining whether this bold financial maneuver is a masterstroke for funding Ukraine or a move that irrevocably damages the international financial order.

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Marc-Antoine Lebrun

Editor in chief

Passionate about finance and new technologies for many years, I love exploring and delving deeper into these fascinating fields to better understand them. Curious and always eager to learn, I’m particularly interested in cryptocurrencies, blockchain, and artificial intelligence. My goal: to understand and share the innovations that are shaping our future.

Russia Slams EU Plan to Use Frozen Assets for Ukraine