Frozen Russian accounts as a game-changer. Why the EU must act now

Chancellor Friedrich Merz has a great way to swing behind Ukraine: work with other leaders to move Russia’s frozen accounts from Belgium and elsewhere to the European Union itself. There is €210 billion in these accounts. Trans­ferring them to the EU will put Vladimir Putin under extra pressure. The Russian president, who is increas­ingly weak, may then finally agree to a ceasefire or even a peace deal.

“Not the Russian accounts again!”, a reader might object. “Didn’t the EU discuss this last December and reject the idea?”

Not exactly. European leaders did, indeed, reject the European Commission’s idea for a so-called repara­tions loan using the frozen Russian assets, based on the principle that Moscow owes Kyiv compen­sation for its illegal invasion. This was an idea I developed with colleagues including Annegret Kramp-Karren­bauer, the former leader of the CDU.

The Crucial Step Was Left Out

But when the Commission adopted our idea, it left out the crucial first step, which was to move the frozen Russian account out of Euroclear, a Belgian clearing house. Instead, it wanted to borrow the cash from this account. Belgium and Euroclear objected that they would be left with a liability to Russia and, if the Kremlin was able to win a legal case, they could go bankrupt. Both Russia and the United States twisted Belgium’s arm so it did not agree to the repara­tions loan.

The Commission tried to find a way of dealing with its concerns but it could not get enough support from the other member states. So the EU instead decided to borrow €90 billion and lend it directly to Kyiv. Three countries — Hungary, Slovakia and the Czech Republic — got opt-outs. This was a blow to Merz, who had championed the repara­tions loan. He did not like common EU borrowing, but he agreed to it through gritted teeth so that Ukraine did not run out of cash.

Our current proposal is to focus on just the first step of our plan, the one that the Commission left out. The idea is to transfer the entire Russian account at Euroclear to the EU itself. The liabil­ities would move along with the assets. The Union would take any risks onto its broad shoulders rather than leaving them with Euroclear. We are also proposing that the EU provide an indemnity to both Belgium and Euroclear to cover any costs in the unlikely event that they suffer damages. Other frozen Russian accounts in the EU would be treated in the same way.

A Down Payment on Russia’s Oblig­a­tions Under Inter­na­tional Law

Belgium should be happy. This is exactly what its prime minister Bart De Wever asked for last October. Euroclear should also be happy as it would no longer be in the firing line. It cannot move ahead with any big corporate trans­ac­tions, such as mergers, so long as it has this poisonous Russian pill on its balance sheet.

Moving the accounts would be the first step. The EU could then decide at a time of its choice how to use the Russian assets to help Ukraine — always, of course, staying within EU and inter­na­tional law. There are several legally solid ways to do this. The key principle is to use the frozen assets as a downpayment against Russia’s oblig­ation under inter­na­tional law to pay compen­sation for its illegal invasion.

The EU might not even have to move to the next step to have an impact. The mere act of trans­ferring the Russia accounts could change Putin’s calcu­la­tions and get him to agree to a deal because he would know that the EU was much closer to using this vast sum of money to help Ukraine.

We have published a draft EU regulation setting out the legal mechanics of how to do this. The key idea is to set up a new facility within the EU itself that would act as the new custodian for the frozen Russian accounts. This can be done using qualified majority voting, so no country would get a veto.

The EU Must Act Swiftly

We have tested this idea with officials in the EU insti­tu­tions and not run into any legal objec­tions. There is also an important precedent. When Saddam Hussein’s regime fell, the Iraqi sovereign accounts outside Iraq were all moved to an account at the Federal Reserve Bank in New York.

However, no big political leader is yet pushing our plan. This seems to be because they are busy with other issues and think Ukraine has no immediate need for cash.

This is short­sighted. For a start, the EU risks missing out on a big oppor­tunity. Ukraine is making headway both on the battle­field and in attacking key Russian infra­structure such as oil terminals. Putin’s economy is creaking. Now is the time to pile in behind Kyiv and help force the Kremlin to agree to a ceasefire or peace deal.

The Window of Oppor­tunity May Soon Close

There is also a risk that the window of oppor­tunity will snap shut if the EU does not act soon. After all, there are key elections coming up in various member states — notably next year’s French presi­dential elections. The far right has been much less supportive of Ukraine than Emmanuel Macron. If it captures the Élysée, it may be impos­sible to move the Russian accounts. After all, France is the EU’s second most powerful country after Germany.

What then would happen when Ukraine runs out of money sometime next year? Even if France was willing to back a new EU loan to Kyiv, Merz would be in an impos­sible position. After all, the German people do not like common EU debt and the  opposition Alter­native for Germany party is hostile to supporting Ukraine. The Chancellor would be faced with a choice between signing up to another unpopular EU loan and letting Ukraine go bust.

It would be better to get ahead of these potential problems and work with Macron to transfer the Russian accounts now. If that helps Ukraine bring this ghastly war to an end, both leaders will be heroes. By contrast, delay risks turning a winning position into a losing one.