The G7 countries stopped discussing the confiscation of russian assets

​​The confiscation of frozen russian assets would provide a financial boost that could turn the tide of the war in Kyiv's favor, according to supporters of this idea, led by the US. According to opponents of this idea, such assistance risks setting a dangerous precedent in international law that could jeopardize not only the interests of any country that quarrels with Western capitals, but also the international legal order itself.

Kyiv is currently relying on a $61 billion military aid package that was approved by the US Senate on April 24 after months of political wrangling. But US President Joe Biden is pressing his allies to find ways to tap into russia's reserves, which amount to an estimated €260 billion, and next month's G7 summit in Italy is seen as a key moment to make progress.

The Biden administration has supported calls for confiscation, as has Canada and some members of the UK government, most notably Foreign Secretary Lord David Cameron. Meanwhile, Japan, France, Germany, Italy, and the EU itself remain extremely cautious, leading to a stalemate. Some of the most prominent skeptics are the G7 central bankers, who are aware of the stabilizing role played by foreign exchange reserves.

There is also concern about the precedent this could set. Countries such as Indonesia and Saudi Arabia have been lobbying EU capitals not to withdraw these assets, as officials say they fear for the future of their own reserves held in the West.

The United States, however, argues that there is a legal basis for full asset confiscation as a legitimate countermeasure to russia's war of aggression. They are trying to convince opponents that the G7 countries have been “particularly affected” by russia's illegal invasion, including through the impact on their economies, and therefore can act to force Moscow to stop its aggression. 

Although Ukraine continues to push for the full confiscation of russian assets, G7 officials privately say that this issue is no longer on the agenda. 

To get around this, the White House is pushing a new idea that it hopes will win the support of G7 leaders in June. According to Singh, this involves providing Ukraine with about $50 billion in the form of a loan or bonds secured by future profits from frozen assets. Euroclear has already made more than €5 billion in extraordinary after-tax profits since the war began, as it reinvests stuck coupon payments and cash on maturing securities that cannot be paid to russia under sanctions.

According to one EU official, the debt, raised in anticipation of decades of profits, must be secured by state guarantees or russian assets themselves, which can be “difficult and expensive.” “If peace talks ever take place and Ukraine decides to participate in them, there may be a situation where russia demands the return of its frozen assets and in exchange agrees to territorial concessions to Ukraine. You can't do that if you have already pledged those assets,” says one German official.

According to European officials, some countries hope that the recently approved U.S. aid package will ease the pressure to use russian assets now that Kyiv is on a more stable financial footing.

But this idea is dismissed by White House spokesman Singh, who warns that decisions made by the G7 in the short term “have generational implications.” He acknowledges that there are risks in mobilizing reserves. But the alternative is “the risk that Ukraine will not receive sufficient funding and one of the most egregious violations of international law in recent history will go unpunished.”

Source: Financial Times