Gintarė Skaistė is currently serving as the Minister of Finance for the Republic of Lithuania.
Ukraine has effectively protected itself from Russia’s aggression, thanks to assistance from the European Union and other Western allies. However, there is still more that can be done, such as utilizing frozen and immobilized Russian assets, in order to strengthen its resilience.
In the last year, the EU has made notable strides in finding a practical legal strategy to utilize the more than €200 billion of frozen assets of the Russian central bank that are present in member countries. This is to help with the efforts to rebuild Ukraine. After considering several possibilities, it appears that there is growing agreement on implementing a “windfall contribution” approach as the most effective path forward. This would comply with both EU and international laws.
The proposed plan involves mandating that those who hold these immobilized assets, known as custodians, transfer their excess profits, estimated to be approximately €3 billion each year, to the EU’s budget.
Creating this amount to assist Ukraine would be a positive advancement. However, with the country’s recovery and reconstruction costs estimated at more than €400 billion, solely relying on this “unexpected contribution” would not be enough. Therefore, we must continue to explore options for accessing or utilizing frozen Russian assets and transferring the funds to Ukraine.
Not only would it be ethically justifiable, but it would also be a practical solution – otherwise, Western countries will bear the entire cost of the harm caused by Russia’s actions.
Hence, recognizing that the confiscation of Russian assets raises intricate legal matters – including those pertaining to ownership and state immunity worries – and that additional political talks are necessary, the EU should, at this time, move forward with the “windfall contribution” choice as an initial measure.
Unfortunately, even with thorough legal considerations thus far, it appears that there is still uncertainty surrounding a political agreement to impose a “windfall contribution” on Russian assets that are unable to be moved. The main concerns preventing this agreement from moving forward revolve around potential financial risks for the EU, related to potential sales of assets denominated in euros and a potential decrease in the euro’s importance as a global reserve currency.
Although these concerns may hold some truth, they should not be exaggerated and should not hinder the pursuit of morally just and strategically wise actions.
After the EU’s decision to freeze Russia’s central bank assets due to their invasion of Ukraine, there has been no apparent decrease in confidence in the euro as a global reserve currency, despite previous concerns about financial stability.
In contrast, the latest report from the European Central Bank (ECB) suggests that the euro’s role on the global stage has actually improved. This is supported by several factors such as its position in foreign exchange reserves, international debt securities, and activity in the foreign exchange market. With this in mind, fears about financial stability do not appear to be well-founded.
In addition, the inclusion of the “windfall contribution” option is not expected to significantly influence the view of foreign asset holders regarding the risks associated with the euro.
This is due to the fact that choosing an alternative currency would not have as much significance as the collective decision made by major financial institutions in all G7 countries to freeze Russian public assets. Therefore, any potential currency options that have similar levels of capital account openness – such as the US dollar, Japanese yen, or British pound – also have the risk of freezing or immobilizing assets, which is a more crucial factor to consider than the possibility of further restrictive measures being imposed on these assets in the future.
Additionally, choosing not to enact a “windfall contribution” option could result in the EU facing substantial damage to its reputation.
According to media sources, around half of the frozen assets of the Russian central bank are currently in the form of cash. A significant portion of the remaining assets are expected to be converted into cash within the next few years. These cash reserves, if kept at the central bank, will earn interest at a rate of 4 percent, as per the deposit facility rate.
Essentially, this means that the ECB will be the main provider of substantial interest earnings. It would be controversial both socially and politically if this money eventually returned to the central bank of Russia. Therefore, the option of a “windfall contribution” should be seen as a way to improve the sanctions system by addressing the unusually high profits resulting from asset mobilization.
Additionally, it is crucial to take into account the utilization of Russian assets that are frozen or immobilized in the context of the EU’s open strategic autonomy.
A victorious and prosperous Ukraine fully aligns with the EU’s strategic interests, which is why there should be no hesitation to leverage — within the bounds of European and international law — the euro’s position in the global monetary system in order to pursue the bloc’s geopolitical objectives.
The US has successfully used the dollar’s prominent role in the global financial system as a means of implementing extraterritorial sanctions, which could serve as a model for the EU.
Not taking firm action against the current complex geopolitical situation on the Continent, which is the most difficult since World War II, could potentially harm the euro’s reputation as a dependable currency in the global rules-based system. This could also raise doubts about the EU’s ability to act as a significant player in geopolitics.
Considering all of these factors, the EU should not hesitate to take charge and quickly move forward with implementing the “windfall contribution” choice.
At the same time, efforts to gather support from similar international allies should also persist. The United States has recently shown its support for the EU’s proposal as a reasonable choice, and other allies from the Western world may also join in. However, it is the responsibility of the EU to take the lead on this.
Since approximately 33% of these frozen and immobilized assets are situated outside the EU, a diverse alliance of collaborators executing the “windfall contribution” plan would naturally enhance its credibility and result in higher amounts of funds being sent to Ukraine.
International collaboration in regards to the utilization of frozen and immobilized Russian assets would serve as a strong argument for a decisive reaction from the international community. This would show that it is absolutely unacceptable to disregard international standards by initiating unjustified acts of aggression against an independent country. As the renowned former US President Ronald Reagan once stated, “Evil is impotent if the righteous are fearless.”