What do you do with Russian assets that have been frozen in Western banks for over a year now? I proposed last fall Norwegian Refugee Council To invest those assets in government bonds of the member states of the European Union. The proceeds could then be transferred to Ukraine to meet the desperate need for money to repair infrastructure destroyed or damaged by the Russian invaders.
Three months later, EU leaders came up with a similar initiative, but they are still arguing about how to implement it. Only Belgium was kind enough to send 100 million euros to Ukraine – collected as tax revenue by the Belgian tax authorities from banks that profited from investing Russian money in their accounts. All other EU countries plus the UK and Switzerland continue to please their banks by allowing them to use Russian money.
More than a year ago, the Ukrainian authorities called for the confiscation and extradition of this money to Ukraine. But European leaders believe that such a move undermines European legal rules and will seriously damage the credibility of the European financial system and the euro as a currency. Since last summer, various groups of experts have been working on arrangements that could lead to resource allocation, but this has not yet led to a breakthrough.
However, there is also another way. Two months ago, at a summit in Hiroshima, G7 leaders declared that “Russian state assets within our jurisdiction will remain frozen until Russia repairs the damage it has done to Ukraine.” This declaration must be turned into a binding treaty. At the same time, these seven countries, together with Switzerland and the European Union (representing the Netherlands, Belgium and other smaller countries that currently have Russian reserves) should create a recovery fund for Ukraine. As a next step, the Ukrainian government must then be prepared to allow this fund to collect and receive only Russian reparations (called for by the UN General Assembly Russia).
Implementation is similar to the renewed Marshall Plan
A lot can change with these steps. Once the fund is established, the G7 countries and the European Commission can order a review of the frozen Russian funds and the conditions under which they were deposited in deposit banks. Once this work is completed, banks will be required to provide the Ukrainian Recovery Fund with loans equal in size and value to the frozen Russian assets. Then the interest rate is set 0.1 percent higher than in deposit contracts with the Central Bank of Russia. Furthermore, the ECB and the central banks of the participating countries do not have to comply with the guarantee obligations associated with these loans. The World Bank may also issue additional guarantees to participating banks. After the money is raised, the fund can then make permanent (or say centenary) loans to the Ukrainian government and individual companies that have suffered losses from the Russian invasion. All expenses will then be paid for under the supervision and direction of this fund, making implementation similar to a rolling Marshall Plan.
Also read this piece by Inozemtsev: The battle against the richest in Russia is now the battlefield
So Russian assets are not used directly for a recovery fund, but indirectly. This means that European legal rules and the credibility of the European financial system are respected, as the Western authorities want. As long as a settlement is necessary, Russian assets will remain frozen, and will not be confiscated. Thus, there is no formal association with loans from the Fund; At the same time, Ukraine can start using the funds in a short time.
If Russia nevertheless agrees to compensation, then it must be transferred to the Ukrainian Compensation Fund. Once here, they are immediately written off in the form of a repaid loan from the lending banks, so that they, in turn, can release the correct amount of frozen Russian assets. This arrangement may even contribute to future Russian governments’ willingness to incur reparations, as they will be at least partially offset by “thawed” credits. And even if Russia refuses to pay, there will be no problem. After all, the loans are renewable and can be extended for an unpaid period — while largely frozen Russian assets will be written off in 30 to 40 years because inflation is so much higher than the interest earned.
We can even with some imagination say that the West is now giving Ukraine financial aid from Russian money
This arrangement will not fully resolve all of the financial and legal issues related to the frozen Russian assets. But I think the current situation is much worse, because Western countries are now benefiting from loans. They add to the profits of their financial system, tax them in favor of budgets, and governments quietly watch frozen funds rapidly decline. We can even with some imagination say that the West is now giving its financial aid to Ukraine from Russian money; The total amount of financial and military aid is not close to the $300 billion frozen in Western banks. Thus, these governments show no desire to use these funds for the reconstruction of Ukraine. It’s time to change this.
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