Is Putin turning his frozen assets from a weakness into a weapon?

With at least seven EU countries reportedly objecting to Russia’s confiscated millions being diverted to Ukraine, the Western allies must beware: Moscow may have stumbled upon a strategy that could divide them, warns Mary Dejevsky

In the nearly four years since Russia’s invasion, the European Union has maintained unity in its support for Ukraine.

That solidarity, however, has come under increasing strain, with this week’s EU summit risking the first really significant split – and potentially dire consequences for Ukraine. The issue is, of course, money, and specifically whether the cash-strapped EU countries will decide that the best way of keeping Ukraine afloat is to reach into the €210bn (£184bn) of Russian assets that have been frozen in EU banks since the start of the war.

Hungary and Slovakia, countries which have kept up sporadic ties with Moscow, were always dissenters on the question of using Russia’s frozen assets. What their dissent concealed, however, was that their objections were widely, if quietly, shared. Now, at least five other countries, Belgium, Italy, Malta, the Czech Republic and Bulgaria, are said to be against, with indications also from Paris that it too has misgivings about using around €18bn of Russian assets frozen in France. There may well be others lying low in the hope of avoiding a high noon.

At stake are very big issues of principle and practicality, with equally big implications not just for the EU, but globally.

‘’There is a view that Russia could sue in the courts – which it is threatening to do – and win, leaving the EU and its banks to pick up the enormous tab’ (Sputnik)

The consensus among those who take the view that Russia acted illegally and thereby forfeited any right to international legal protection for assets held abroad is that, one way or another, the money should be used for Ukraine’s benefit – although some murkiness now surrounds precisely what it should be spent on and when.

Early on, the idea was that the money would be earmarked for Ukraine’s post-war reconstruction, in lieu of reparations (which it was deemed Russia would refuse to pay). More recently, however, the idea seems to be that it would be used to help pay for military help for Ukraine – replacing what the US contributed before – and so, in effect, to continue the war.

The latest idea is that the money would also be used to help keep Ukraine running – not just funding the war, but paying state employees, and keeping schools, hospitals and power plants functioning. With the money, it is envisaged that Ukraine could remain viable for another two years; without it, Ukraine could face economic collapse as early as February.

On the other side, it is argued that Russia’s illegal invasion needs to be kept distinct from its foreign assets. For the EU essentially to help itself to another country’s deposits, so the logic runs, would amount to theft, jeopardise a basic principle of international finance, threaten the good name of the EU and its members as reliable guardians of other people’s money, and precipitate a worldwide free-for-all in which no one’s assets would be safe from confiscation by a foreign power.

There is also a view that Russia could sue in the courts – which it is threatening to do – and win, leaving the EU and its banks to pick up the enormous tab.

The legal arguments are contested, but this risk helps to explain why Belgium has emerged in the vanguard of the objectors. A Belgian company, Euroclear, holds a disproportionate amount – €150bn – of the Russian assets, and Belgium is demanding that at very least all EU countries share the risk equally, which the others, equally understandably, do not want to do. The rift has led to convoluted efforts to find a legal route for using the assets that would somehow get the EU off the hook, but such a route has proved elusive.

An early mechanism, which met little opposition, was for the EU to release the interest accrued on the assets since they were frozen and use that for the benefit of Ukraine. Now, however, with the US turning away from Ukraine, far bigger sums are needed, which is why the assets themselves have come into play. One suggestion has been to use the assets as collateral for loans, but were Russia to win a lawsuit or were Ukraine unable to pay any loans, the EU could face huge liabilities.

Another route, advanced last week by two of the most convinced proponents of using the assets – the president of the EU Commission, Ursula von der Leyen, and the EU chief diplomat, Kaja Kallas – would be to declare an emergency and suspend normal voting rules to force the measure through. This, though, not only underlines that what is afoot is essentially an effort to get around the law, but also highlights some of the defects in EU democracy and the inroads it can make on national sovereignty. These are some of the very same arguments, it might be remembered, that were advanced by the UK’s Brexiteers.

While Brexit may have removed the UK from direct involvement in this debate, the UK’s full-throated support for Ukraine and London’s role as a global financial centre make the controversy a live one, here, too. And while Keir Starmer recently suggested that the UK would be willing to contribute the Russian assets frozen here, the banking establishment is reported to be warning against such a prospect – for the obvious reputational reasons. In this respect, the sudden media availability of the foreign secretary, Yvette Cooper, was striking.

Only hours before EU leaders were due to meet, she gave several one-to-one interviews, telling the former Chelsea FC owner, Roman Abramovich, he had 90 days to transfer his £2.5bn proceeds from the forced sale of the club to Ukraine.

Given that his assets were frozen by the UK, this sudden demand might seem a stretch. In the context of the high-stakes EU summit, however, it could be seen as a small gesture of support, albeit one that might usefully divert attention from what the UK might or might not do about other Russian assets it holds.

The Abramovich diversion, however, should not be allowed to distract from the importance of the decision before the EU. The outcome could determine the economic stability of several EU countries and even of the EU itself; it could destroy the reputation of the EU as a bastion of the rule of law; it could precipitate total economic, if not wider, war with Russia, and it could have a critical bearing on the very survival of Ukraine.