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"The seizing of Russian investments into US/EU bonds are a de-facto default of US/EU debt"
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Will Europe buckle under US pressure to seize Russian deposits?
Billions of dollars of Russian assets held at European banks have been frozen as part of sanctions on Moscow and Brussels is under pressure to seize them.
SALMAN AHMAD
REUTERS
A Russian state flag flies over the Central Bank headquarters in Moscow, Russia, August 15, 2023. A sign reads: "Bank of Russia". Credit: Shamil Zhumatov
The European Union is pushing back against pressure from US President Joe Biden’s administration that wants it to seize Russian assets held inside banks in Europe so they can be used to buy weapons and ammunition for Ukraine.
Approximately $300 billion of Russian assets including the foreign currency reserves of the Central Bank of Russia held at Western banks were frozen after Moscow launched a war in Ukraine.
A large portion of these assets is kept at Euroclear, the Belgium-based company that settles financial transactions between banks.
Russia hawks in the US have long pushed for seizing the frozen assets and using them to pay for the war in Ukraine.
But EU officials are worried about the reputational risk of such a move, which will undermine the trust of central banks of other countries in the European financial system.
Europeans are worried, says Steffen Weber, a political commentator and former chief advisor at the European Parliament, "firstly due to the illegality of the move and secondly the potential reputational damage Europe could face".
Weber told TRT World that seizing or confiscating Russian assets could lead to deposit withdrawals from other major countries such as China, India and Saudi Arabia, signalling negative sentiments towards other foreign investors.
European leaders have been under particular pressure from the Biden administration since late April when the US Congress voted on a bill to kick off a series of events to seize Russian deposits in US banks.
Instead of outright seizure of the Russian deposits, the European leaders have agreed to scoop up profit that the assets generate in the shape of interest income.
That windfall profit of nearly $3 billion from Russian deposits will be used to buy weapons for Ukraine.
Previously, the Bloc's foreign policy chief, Josep Borrell, said he was weary of Russian reaction, saying "the Russians will not be very happy. The amount of money, three billion per year, is not extraordinary, but it is not negligible".
Ukraine war
Public opinion in European states has shifted on war as their government continues to send billions of dollars to Ukraine while the economies at home falter.
EU economies have been severely impacted over the last few years due to a series of unprecedented events such as Brexit, the Corona pandemic and more recently the Ukraine war.
So far the EU, which is the second largest donor to Ukraine after the US, has dished out $107 billion in financial, military, humanitarian, and refugee assistance to Kyiv.
So much money going to Ukraine at a time when EU economic growth is faltering has roused public sentiments.
The Bloc's largest economy, Germany, is now in a recession with its unemployment rate up a percentage point at six percent, when compared to 2022.
In an opinion poll conducted in Germany by the INSA polling organisation, 40 percent of the respondents suggested cutting aid to Ukraine when asked about which sectors of the economy should experience public spending cuts.
Prompted by European public disapproval towards sending more European funds to Ukraine, ECB Chairperson Christine Lagarde said earlier this month, "(seizing) is something that needs to be looked at very carefully" but warned it could "start breaking the international legal order."
A matter of Europe’s reputation
Pushing back on the question of seizing Russian assets will set the EU at loggerheads with the Biden administration but it has to be done, says Athar Javed, a Denmark-based political and security analyst.
Commenting on the legality of seizing Russian assets, Javed told TRT World, "the West should respect international law, if Europe doesn't do so, rogue states can step in and do what they like".
He added, "tomorrow anyone can make a law in their country and start seizing European assets – this is now way to run the world, it endangers the international rules based order".
"Europe's financial and service industry needs to respect certain powerful regions of the world which bring their money and natural resources and invest it in Europe."
Pointing to European consumers, Javed says, "European banking laws will become redundant, if they capitulate under pressure to destroy Russia - this isn't war, this is economics, this will directly hit people and taxpayers, when they are hit that will mean chaos will rule, more violence, opens up more avenues for rogue groups to enter the fray".
By referring to war time asset seizures, Javed pointed to the historical precedence of asset seizures during wars, during the Second World War, German and Japanese assets were frozen and used to settle claims once the war ended.
The largest asset transfer followed the first Gulf war, where Iraq paid $52.4 billion in war reparations, which were completed only in 2022. Haiti, Germany, France, and Finland have all paid significant damages over the last 200 years.
However, those reparations were made after the war ended and as part of a peace treaty.
Steffen Weber says "if we do this, the Russians will take us to court, what would we do then? The Russians could also make the little direct trade that is still going on with the EU and the larger indirect trade, very difficult".
The EU remains engaged with sanctions-hit Russia through direct and indirect trade. Weber suggests the flow of Russian gas and oil into Europe could get disrupted, furthering the problems in Europe of high energy costs translating into high manufacturing costs.
According to the conservation campaign group, Global Witness, around 27 percent of the oil which landed on EU ports came from Russia.
Weber says the risk through direct trade with Russia would expose European countries and governments to the dangers of asset seizures by the Russian government.
"That figure could be in the billions of Euros, European companies will be exposed to serious risk should the ECB buckle under US pressure," says Weber.
Russian President Vladimir Putin last week signed a decree allowing his government to seize assets of US companies and individuals, in retaliation to US seizure of Russian assets. Weber fears Europe would face similar threats.
Pointing to shifting politics within Europe, Weber suggests a rise in far-right politics in Europe would result in further push back against US pressure.
"It's very difficult to predict how the EU will move, it depends hugely on the upcoming European elections, however far-right politics across Europe is rising and is fairly sympathetic to Putin and will likely push again seizing Russian assets.
Billions of dollars of Russian assets held at European banks have been frozen as part of sanctions on Moscow and Brussels is under pressure to seize them.
SALMAN AHMAD
REUTERS
A Russian state flag flies over the Central Bank headquarters in Moscow, Russia, August 15, 2023. A sign reads: "Bank of Russia". Credit: Shamil Zhumatov
The European Union is pushing back against pressure from US President Joe Biden’s administration that wants it to seize Russian assets held inside banks in Europe so they can be used to buy weapons and ammunition for Ukraine.
Approximately $300 billion of Russian assets including the foreign currency reserves of the Central Bank of Russia held at Western banks were frozen after Moscow launched a war in Ukraine.
A large portion of these assets is kept at Euroclear, the Belgium-based company that settles financial transactions between banks.
Russia hawks in the US have long pushed for seizing the frozen assets and using them to pay for the war in Ukraine.
But EU officials are worried about the reputational risk of such a move, which will undermine the trust of central banks of other countries in the European financial system.
Europeans are worried, says Steffen Weber, a political commentator and former chief advisor at the European Parliament, "firstly due to the illegality of the move and secondly the potential reputational damage Europe could face".
Weber told TRT World that seizing or confiscating Russian assets could lead to deposit withdrawals from other major countries such as China, India and Saudi Arabia, signalling negative sentiments towards other foreign investors.
European leaders have been under particular pressure from the Biden administration since late April when the US Congress voted on a bill to kick off a series of events to seize Russian deposits in US banks.
Instead of outright seizure of the Russian deposits, the European leaders have agreed to scoop up profit that the assets generate in the shape of interest income.
That windfall profit of nearly $3 billion from Russian deposits will be used to buy weapons for Ukraine.
Previously, the Bloc's foreign policy chief, Josep Borrell, said he was weary of Russian reaction, saying "the Russians will not be very happy. The amount of money, three billion per year, is not extraordinary, but it is not negligible".
Ukraine war
Public opinion in European states has shifted on war as their government continues to send billions of dollars to Ukraine while the economies at home falter.
EU economies have been severely impacted over the last few years due to a series of unprecedented events such as Brexit, the Corona pandemic and more recently the Ukraine war.
So far the EU, which is the second largest donor to Ukraine after the US, has dished out $107 billion in financial, military, humanitarian, and refugee assistance to Kyiv.
So much money going to Ukraine at a time when EU economic growth is faltering has roused public sentiments.
The Bloc's largest economy, Germany, is now in a recession with its unemployment rate up a percentage point at six percent, when compared to 2022.
In an opinion poll conducted in Germany by the INSA polling organisation, 40 percent of the respondents suggested cutting aid to Ukraine when asked about which sectors of the economy should experience public spending cuts.
Prompted by European public disapproval towards sending more European funds to Ukraine, ECB Chairperson Christine Lagarde said earlier this month, "(seizing) is something that needs to be looked at very carefully" but warned it could "start breaking the international legal order."
A matter of Europe’s reputation
Pushing back on the question of seizing Russian assets will set the EU at loggerheads with the Biden administration but it has to be done, says Athar Javed, a Denmark-based political and security analyst.
Commenting on the legality of seizing Russian assets, Javed told TRT World, "the West should respect international law, if Europe doesn't do so, rogue states can step in and do what they like".
He added, "tomorrow anyone can make a law in their country and start seizing European assets – this is now way to run the world, it endangers the international rules based order".
"Europe's financial and service industry needs to respect certain powerful regions of the world which bring their money and natural resources and invest it in Europe."
Pointing to European consumers, Javed says, "European banking laws will become redundant, if they capitulate under pressure to destroy Russia - this isn't war, this is economics, this will directly hit people and taxpayers, when they are hit that will mean chaos will rule, more violence, opens up more avenues for rogue groups to enter the fray".
By referring to war time asset seizures, Javed pointed to the historical precedence of asset seizures during wars, during the Second World War, German and Japanese assets were frozen and used to settle claims once the war ended.
The largest asset transfer followed the first Gulf war, where Iraq paid $52.4 billion in war reparations, which were completed only in 2022. Haiti, Germany, France, and Finland have all paid significant damages over the last 200 years.
However, those reparations were made after the war ended and as part of a peace treaty.
Steffen Weber says "if we do this, the Russians will take us to court, what would we do then? The Russians could also make the little direct trade that is still going on with the EU and the larger indirect trade, very difficult".
The EU remains engaged with sanctions-hit Russia through direct and indirect trade. Weber suggests the flow of Russian gas and oil into Europe could get disrupted, furthering the problems in Europe of high energy costs translating into high manufacturing costs.
According to the conservation campaign group, Global Witness, around 27 percent of the oil which landed on EU ports came from Russia.
Weber says the risk through direct trade with Russia would expose European countries and governments to the dangers of asset seizures by the Russian government.
"That figure could be in the billions of Euros, European companies will be exposed to serious risk should the ECB buckle under US pressure," says Weber.
Russian President Vladimir Putin last week signed a decree allowing his government to seize assets of US companies and individuals, in retaliation to US seizure of Russian assets. Weber fears Europe would face similar threats.
Pointing to shifting politics within Europe, Weber suggests a rise in far-right politics in Europe would result in further push back against US pressure.
"It's very difficult to predict how the EU will move, it depends hugely on the upcoming European elections, however far-right politics across Europe is rising and is fairly sympathetic to Putin and will likely push again seizing Russian assets.
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