Belgium Considers Easing Stance on Frozen Russian Assets if EU Shares Financial Risks

Belgium's Conditional Shift on Russian Assets

Belgium has indicated a willingness to adopt a more flexible position regarding the use of frozen Russian state assets, but only if the European Union agrees to share the potential financial risks involved. This development marks a significant shift in discussions surrounding how to leverage the substantial funds immobilized since Russia's full-scale invasion of Ukraine to aid Kyiv's reconstruction efforts.

A significant portion of the approximately €300 billion in frozen Russian central bank assets within the EU is held by Euroclear, a major financial clearinghouse based in Belgium. This has placed Belgium at the center of the debate, as any decision on these assets would profoundly impact its financial system.

Concerns Over Financial Stability and Legal Precedent

Previously, Belgium had expressed considerable reservations about the direct seizure or extensive use of these assets. The Belgian Finance Minister had warned that such actions could lead to a 'terrible systemic shock' to the euro and the broader international financial system. Concerns also included the potential for legal challenges from Russia, the risk of retaliation, and the precedent it might set for international financial law.

The main worry for Belgium and other EU members is the liability for potential lawsuits if these assets are used. Should the EU establish a mechanism to collectively absorb these financial and legal risks, it would alleviate a major hurdle for countries like Belgium to support more aggressive proposals for utilizing the funds.

EU's Proposal for Ukraine Aid

The European Commission has recently put forward a proposal that seeks to provide a substantial loan to Ukraine, potentially in the tens of billions of euros. This loan would be backed by the future profits generated from the frozen Russian assets, rather than directly seizing the assets themselves. This approach aims to circumvent some of the more complex legal and financial obstacles associated with outright confiscation.

Ukrainian President Volodymyr Zelenskyy has consistently advocated for Russia's frozen assets to be used as reparations to compensate for the damage caused by the ongoing conflict. The proposed EU loan, funded by the returns on these assets, could offer a compromise, providing much-needed financial support to Ukraine without fully crossing the line into direct asset seizure.

What happens next

The European Union will continue discussions on the best way forward. Belgium's new condition introduces a critical element to these negotiations, requiring member states to consider a robust risk-sharing mechanism. Further legal and financial analyses will likely be undertaken to determine the feasibility and structure of such a framework. The final decision will require broad consensus among all EU member states, balancing the urgent need to support Ukraine with maintaining the stability and integrity of the international financial system.