Ukrainians hold signs during a protest demanding the use of frozen Russian assets on the sidelines of the Economic and Financial Affairs Council meeting in Brussels on Friday. Belgium has been blocking an EU plan to approve a large “reparations loan” for Ukraine backed by frozen Russian state assets because it fears major legal and financial risks. Russia has filed a lawsuit as a warning. Photo by Olivier Hoslet/EPA
Dec. 12 (UPI) — Russia’s Central Bank has filed suit against the Belgian bank that holds about $217 billion in frozen Russian state assets to stop the European Union from using that money to make a large loan to Ukraine.
Most of Moscow’s frozen cash is held in Belgian bank depository Euroclear. The EU wants to extend a loan to Ukraine, which is running out of money to fight the Russian invasion of the country. But Russia wants to block that loan and accuses the EU of theft.
The Central Bank filed the suit in the Moscow City Arbitration Court as a warning to the EU. It said in a statement that Euroclear was participating in “unlawful activities” and that it filed the suit because the EU’s executive was “considering proposals for direct or indirect use of Bank of Russia assets without authorization.”
“A Moscow court cannot force Euroclear to comply, and any ruling would be unenforceable abroad,” said Alexandra Prokopenko, a former Russian Central Bank official and a fellow at the Carnegie Russia Eurasia Center, told The New York Times.
“But it is not meaningless: It creates formal documentation of Russia’s legal claims and serves as a political signal ahead of international litigation.”
Prokopenko also said an investment protection agreement exists between Russia, Belgium and Luxembourg that requires any loss to be compensated. That means Moscow could use that in future international arbitration against Belgium. So Belgium is worried about being left responsible in the future.
EU leaders will discuss the potential loan at a meeting Thursday in Brussels of leaders of all 27 member states. Belgium’s Prime Minister Bart de Wever was in London to meet with British Prime Minister Keir Starmer on Friday. The frozen assets were on the agenda, British officials have said.
European countries have been pushing Belgium to agree to the plan, but it’s trying to convince other countries to share the risk. Although most of Russia’s cash is at Euroclear, but smaller amounts are held in other European countries.
The loan plan would use the frozen assets to back a $106 billion loan to Ukraine, meted out over the next two years. Ukraine would only have to pay it back if Russia pays reparations.
Ukraine’s President Volodymyr Zelensky said about the funds, “It’s only fair that Russia’s frozen assets should be used to rebuild what Russia has destroyed — and that money then becomes ours.”
The loan plan could also cause a clash with Washington. In the U.S.-created peace plan that is still being negotiated, that frozen money was to be used to help rebuild Ukraine. But EU officials argue that if Ukraine falters financially, it will be in a weakened position in peace negotiations.
Using the frozen funds could “destabilize the international financial system,” Euroclear chief executive Valérie Urbain said.
“Belgium is a small economy,” Veerle Colaert, professor of financial law at KU Leuven University, told the BBC. “Belgian GDP is about [$661.5 billion] — imagine if it would need to shoulder a [$216.5 billion] bill.” She also said the loan may violate EU banking rules.
“Banks need to comply with capital and liquidity requirements and shouldn’t put all their eggs in one basket. Now the EU is telling Euroclear to do just that,” Colaert said.
“Why do we have these bank rules? It’s because we want banks to be stable. And if things go wrong it would fall to Belgium to bail out Euroclear. That’s another reason why it’s so important for Belgium to secure water-tight guarantees for Euroclear.”