Belgium says No: Confiscating Russian frozen assets could bankrupt Belgium

Today the European Commission finally revealed its proposed legal texts on how to finance a new round of at least €90 billion of support for Ukraine. Together with resources from other Western allies, the aim is to provide Ukraine with about €135 billion, following the decision of the US no longer to provide financial backing to the country to help it resist Russian aggression. 

The Commission proposes to channel frozen assets of the Russian Central Bank into a zero-interest line of credit for Ukraine. Most of these assets – about €185 billion – are held at a central securities depository in Brussels, Euroclear, meaning the Belgian State is liable for any legal challenge against this scheme by Russia. As Russia would be able to recover the assets in case it compensates Ukraine for war damage, this really would not amount to “confiscation”, the European Commission claims — but this is of course nonsense, as Russia has not consented to this arrangement.

The Belgian government has therefore strongly objected to the Commission plan, stressing that it can only agree if there would be “legally binding, unconditional, irrevocable, on-demand, joint and several guarantees” from all other EU member states to cover the potential fallout, like arbitration costs, interests, investment opportunity loss and even the “quantification of financial impact to the Central Bank of Russia’s credit”. In a scathing letter to European Commission President Ursula von der Leyen, Belgian Prime Minister Bart De Wever, blasted the proposed reparations loan as “fundamentally wrong” and riddled with legal and financial pitfalls.

As an alternative, Belgium has suggested to leave the Russian assets untouched and instead finance the support for Ukraine through jointly issued EU debt. This is however being opposed by a vast majority of member states, due to the immediate impact this would have on their national budgets. Another option, non-repayable grants provided bilaterally by EU member states to Ukraine, are a non-starter for the same reason, as European national finances aren’t exactly rosy at the moment.

Bankrupting Belgium through qualified majority voting?

Belgian Foreign Minister Maxime Prevot has warned that going through without giving in to Belgian demands would amount to “bankrupting”. Notably, he thereby added earlier this week that “they are exploring a range of options, including, if necessary, the possibility of adopting the decision by qualified majority, that is, by circumventing the Belgian decision.”

Today the European Commission decided to ignore Belgium’s concerns, presenting its plan anyway, not only proposing to use the Russian assets, but even claiming that this can be decided with a qualified majority of EU member states – 55 per cent of member states comprising 65 per cent of the EU’s population. In other words, the European Commission thinks it should be possible to outvote Belgium on a decision which according to the Belgian government risks the bankruptcy of the country. This is completely without any precedent and can serve as more evidence of how out of control the institution led by von der Leyen is. 

In this regard, it is interesting that the European Commission reportedly wants to use Article 122 of the EU Treaty in combination with qualified majority in order to avoid that a single member state – Hungary or Slovakia, notably – would be able to veto the extension of the sanctions against Russia. These must be renewed every six months, and until now, every EU member state enjoys a veto. The fear is that lifting the sanctions would legally require Belgium to immediately return the missing billions to Russia, in case the European Commission’s Euroclear scheme would have been agreed. 

Article 122 of the EU Treaty is a vague article enabling qualified majority voting in case this is necessary to decide “measures appropriate to the economic situation.” It has already been used as a legal basis to pass the very first eurozone bailout scheme, the European Financial Stabilisation Mechanism (EFSM), in 2010, effectively getting non-eurozone member states to become financially liable for eurozone bailouts. Also the EU’s Covid recovery fund and EU unemployment fund SURE are grounded in Article 122, as well as the EU’s new €150 billion SAFE defence fund. The European Parliament has filed an EU court challenge against the SAFE regulation over the fact it is not involved when Article 122 is the legal basis, indicating the shaky nature of this approach. Furthermore, the German Constitutional Court has warned about the legality of using Article 122 as a basis for the Covid Recovery Fund, which was later sharply criticised by the EU Court of Auditors. 

In sum, the European Commission’s approach offers anything but solid legal guarantees for Belgium.

Very well, alone?

In response to the European Commission’s proposal, Belgian PM De Wever denied that Belgium would be alone in opposing it, saying: “It may seem that way. But I think many countries are not speaking out, and I understand why. I even think that literally everyone understands that the demands we are making are rational and very reasonable, and that they should be met. The question is whether they will be able to meet them, and so far, that hasn’t been the case.” He vowed there was still time until the EU summit on December 18th, adding: “we’re not going to risk hundreds of billions on Belgium. Not today, not tomorrow, never.”

Those that are so keen on confiscating the frozen Euroclear assets should explain why this operation will not spectacularly backfire. Russia may retaliate against it in Western courts, which are independent, not to speak of arbitration courts. Russia may also confiscate Western assets in retaliation, or encourage its allies, including perhaps China, to do so. Non-Western investors may pull their assets out of the West – not just out of Belgium. 

All of that, just to get Ukraine at best two years of extra financing, and to avoid paying to help Ukraine directly, which may become unavoidable anyway afterwards. The European Central Bank has refused to backstop the EU Commission’s plan on the basis of the ban on monetary financing. Diplomats from other EU member states have stated that that they cannot accept Belgium’s demands because it would put their country’s financial viability at the whim of a court ruling, potentially exposing them to billions of euros of repayments years after the war in Ukraine ends. Then we haven’t even mentioned the Trump administration’s interest in the Euroclear billions. Do European NATO countries really think they could ever get away with quickly sneaking the cash before their American security provider can? Not that it would become a good idea if Trump would force through effective confiscation of these assets. There is no known precedent. Frozen Iraqi assets were used to compensate the victims of the Iraq’s 1990 invasion of Kuwait and Iran’s 1979 seizure of the US Embassy in Tehran, but these were legally solid as they were part of post-conflict peace deals – a UN resolution and a diplomatic deal respectively. 

The conclusion is clear: If European countries want to continue supporting Ukraine – a fine idea, given how Western military support has helped to contain the Russian aggression – they will need to pay for it.