Using Russian assets in Ukraine would be a mistake

Two girls sit in a public square in front of destroyed buildings amid the Russian invasion of Ukraine, in Borodyanka outside kyiv, Ukraine May 16, 2022. Picture taken May 16, 2022. REUTERS /Jorge Silva

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LONDON, May 17 (Reuters Breakingviews) – Western powers have frozen about $300 billion in Russia’s foreign exchange reserves. Rebuilding Ukraine after the war could cost at least as much Read More . So the idea that the US and Europe should confiscate the assets and use them to help fund the mammoth task has symmetrical financial appeal. It would also provide moral comfort by making the country responsible for the destruction pay for the reconstruction. But it would also be a bad way to hold Russia to account.

Assuming the overall composition of Russian reserves hasn’t changed much since June last year, France, Germany and the UK now control the equivalent of around $155 billion, with another $39 billion pending in the US .

From a legal point of view, the seizure of assets held at the Russian central bank is more complicated than freezing them. Yet even if governments can find a workaround – for example, by passing new laws – confiscation would be a mistake.

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For starters, the move would deprive Western powers of a key source of influence over Russia when negotiating a truce, as they could no longer offer to unfreeze assets. Indeed, the permanent loss of reserves could even push President Vladimir Putin to more desperate and aggressive acts.

Once seized, the reserves would also be open to claims by individuals or organizations alleging harm by Moscow. Think of the private creditors who could suffer losses following a Russian sovereign default.

Finally, confiscating the reserves would imply that Europe and the United States have given up hope of a future Russia one day reintegrating into the international system. If a more Western-friendly regime were to emerge, it would demand the return of at least some of the money. That would leave American and Western taxpayers on the hook.

The best way to rebuild Ukraine is for governments and international organizations to start thinking about the complex international and financial strategy that will enable them to begin the task once the war is over. Do not dream of confiscating Russian reserves.

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– German Finance Minister Christian Lindner is “politically open to the idea of ​​seizing foreign assets from the Russian Central Bank” to help fund Ukraine’s reconstruction, he said in an interview with of European newspapers published on May 17.

– Lindner added that the idea was currently being discussed among members of the European Union and within the G7 group of industrialized countries.

– Confiscation of Russian central bank’s foreign currency reserves, frozen since Russia’s invasion of Ukraine, is an idea that the International Monetary Fund “will also study carefully”, said IMF Deputy Director Gita Gopinath, to the Financial Times on May 17.

– Josep Borrell, the EU’s high representative for foreign policy, told the FT on May 9 that European governments should start thinking about using the reserves to rebuild Ukraine.

– Russian Deputy Foreign Minister Alexander Grushko later told reporters that such a move would amount to “the destruction of the mere foundation of international relations.”

– Kyrylo Shevchenko, the governor of Ukraine’s central bank, told the BBC in April that much of the “huge” financial package needed to rebuild Ukraine “must be obtained as compensation for the ‘aggressor”.

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Editing by Peter Thal Larsen, Streisand Neto and Oliver Taslic

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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