The unintended consequences if the EU seizes Russian assets have been warned by Euroclear, the largest clearing organization in Europe.
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In an interview with Bloomberg on the sidelines of the World Economic Forum in Davos, Switzerland, Euroclear CEO Valerie Urbain emphasized that if the EU seizes the frozen Russian assets, it could lead to retaliatory measures from Moscow, further destabilizing the EU financial markets.
"Russia may retaliate, which will further destabilize the financial situation," Ms. Urbain stated.
Euroclear is holding approximately 213 billion USD (equivalent to 197 billion euros) out of nearly 300 billion USD in assets of the Central Bank of Russia that have been frozen by the US and EU after the Ukraine conflict escalated in February 2022.
Ms. Urbain believes that these frozen assets could become leverage in peace negotiations between Russia and Ukraine. However, she also noted that some EU officials are pushing for their seizure to fund Ukraine's military and reconstruction efforts.
The CEO of Euroclear emphasized that if seizures occur, EU countries need to transfer not only the assets but also the accompanying legal responsibilities, in order to protect this international financial organization that specializes in providing payment, custody, and securities clearing services from potential claims from Russia.
Ms. Urbain also warned in December that using Russian assets or profits generated from them to fund Ukraine could threaten the euro's role as a global reserve currency and negatively impact the financial stability of the EU.
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Some EU and G7 countries have debated this issue for the past three years, but many are concerned that the move to seize Russian assets could undermine trust in the European financial system and set a dangerous precedent.
The Ukrainian government has continuously called on Western allies to seize Russian assets to fund military activities and reconstruction. Meanwhile, in July, the European Commission announced it was ready to transfer the first installment of 1.55 billion euros in interest earned from the frozen assets of the Central Bank of Russia to Ukraine.
However, Moscow strongly opposes the freezing and seizure of assets, calling it "an act of theft." Kremlin spokesman Dmitry Peskov warned that Russia would take legal action against anyone involved in this seizure.
With a warning from Euroclear, EU leaders face a risky decision: take strong action against Russian assets to support Ukraine, or maintain the stability and credibility of the European financial system. Will this be a strategic move or a 'double-edged sword'? Time will tell.
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