WIt is uncertain how long the war in Ukraine will last. What is certain, however, is that it not only costs tens of thousands of lives, but also causes great economic damage. The EU wants to (co-)finance the necessary post-war reconstruction of Ukraine on a large scale. Unlike after the Corona pandemic, this time it’s really about “reconstruction”.
That’s why EU Commission chief Ursula von der Leyen indicated at the FAZ readers’ congress last week that she thinks a second reconstruction fund, this time for Ukraine, makes sense. To finance it, the EU should again take on debt. The EU Commission is already considering what the fund could look like.
Of course, new EU debt is politically highly controversial, especially since the Corona Fund is said to be a one-off thing. The EU foreign policy chief Josep Borrell has therefore brought a different type of reconstruction financing into play. In the “Financial Times” he suggested using the frozen Russian foreign exchange reserves for this purpose. The EU should consider confiscating the funds, he said.
Following Russia’s invasion of Ukraine, the EU and its Western allies froze international reserves held by the Central Bank of Russia. Borrell points to the example of Afghanistan: Here, after the radical Islamic Taliban took power, the USA put the assets of the Afghan central bank on hold and used part of them to support the Afghan people. “We have the money in our pockets,” Borrell said. “And someone has to explain to me why it’s good for Afghan money and not good for Russian money.” Borrell left it open how he imagined access to the foreign exchange reserves.
Moscow is said to have fewer funds for the war
It has been known since mid-March that the Russian central bank no longer has foreign currency reserves of 300 billion dollars at its disposal. As a result of the sanctions imposed by the West, access to around half of the currency reserves has been lost. How many of them are parked at the individual banks (and how many of them in the EU) is not known. Allegedly, the Russian central bank has 20 billion dollars with the Bank for International Settlements, the “Bank of Central Banks” based in Basel. It also maintains accounts with commercial banks. So far, the American JP Morgan has served as the correspondent bank of the Russian state, which also used it to pay interest and repayments on the dollar-denominated bonds.
EU foreign policy chief Josep Borrell is demanding EU access to the assets of the Russian central bank.
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Image: AFP
But that hasn’t been possible since early April because the US Treasury Department removed the exemption that allowed US banks to forward payments from Russia to Western creditors. So far, however, Russia has been able to service its dollar-denominated bonds, albeit with delays. However, recently it had to be resorted to forex holdings in Moscow. With its measures, the West aims to ensure that Russia has to use up its remaining foreign exchange reserves very quickly. This is intended to limit the ability to finance the war in Ukraine.
Borrell “probably doesn’t know exactly what he’s asking for”
Borrell is not the first to call for EU access to the assets of the Russian central bank and thus its de facto expropriation. Representatives of Poland, the Czech Republic and the Baltic States have repeatedly raised this possibility in recent weeks. However, just like Borrell, they have not explained how such a step could be accomplished. There is no legal basis for this in European law, and the situation is similar in international law. Christian Tietje, Professor of International Economic Law at the University of Halle, can see no legal basis for the “expropriation without compensation” of the Russian central bank’s foreign assets there either. Even under the law of occupation, there is an explicit obligation to pay compensation under international humanitarian law. Moreover, reparation payments require a contractual arrangement. “It used to be called a peace treaty,” Tietje told the FAZ
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From the point of view of the international law expert Helmut Aust from the Freie Universität Berlin, there is a lot to be said for the fact that the Russian central bank reserves, as sovereign funds, are fundamentally protected by immunity. “One can assume that these reserves serve the Russian government’s overriding financial and economic purposes.” Aust is critical of the fact that international law allows an exception to this principle because of the Russian war of aggression. Western states would then also have to fear that their foreign assets would be less safe from access by other governments in the future.
Contrary to what Borrell claims, the lawyers believe that the Afghan and Ukrainian cases cannot be compared. President Joe Biden has ordered the $7 billion in confiscated assets from the former Afghan government to be split, half for Afghanistan’s vulnerable population and half for victims of terrorism in the United States.
Aust points to the different US goals in Afghanistan and Ukraine. Unlike Ukraine, the ruling Taliban should not be getting any money. An EU diplomat also points out that Borrell “probably doesn’t know exactly what he’s asking for.”