The EU Commission has drafted proposals for the Council of Ministers based on some kind of combination of stealing and borrowing money to fund the war (and support the failed state of Ukraine).
The Guardian at least is reporting this as if the Commission’s proposal was some kind of event and done deal. They must surely be aware that the Commission is an executive body and they just make proposals for Ministers to decide – but this is not apparent in their reporting. However; hidden away in the small print, it turns out that this decision can be made based on Qualified Majority Voting in the Council. (For those not familiar with this; the EU has rules which mean that some decisions have to be accepted by all member states but some can be accepted based on a majority vote. Admitting a new member state is an example of the former; which is how Hungary can block Ukraine’s accession to the EU).
The legal obstacles to stealing the money and how the EU may overcome them
This EU Parliament discussion paper states the problem: [1]
Within the EU, there has been agreement, for now at least, on the adoption of measures concerning unexpected and extraordinary profits from central securities depositories, which were adopted in accordance with internal EU law provisions concerning restrictive measures. However, windfall profits associated with the Central Bank of Russia’s (CBR) matured assets in Euroclear currently do not meet the estimated amount of funds needed to support Ukraine. Utilising immobilised CBR principal assets and cash balances as part of the EU’s restrictive measures for rebuilding Ukraine and securing reparations owed to it by Russia has been met with two key challenges:
- At the EU level, proposals under the Common Foreign and Security Policy, especially
relating to CBR assets, are hindered by unanimity decision-making processes and the possible use of veto powers by Member States;
EU sanctions and Russia’s frozen assets
vii- At the international level, CBR assets are protected by the laws of state immunity and it remains questionable under what circumstances such assets could lawfully be utilised for the purposes of securing reparations [1]
The main problem for the asset stealing plan is that it depends on sanctions against Russia, which include the asset freeze, only being lifted after Russia has paid reparations. The (huge) risk is that Hungary could block the prolongation of sanctions – and at that moment the frozen assets would need to be returned. If they have been given to Ukraine the EU member states would be on the line for them. So; they have to find a way to neutralise Hungary’s possible veto.
There are two possible options to neutralise this risk:
To tackle the CFSP unanimity challenge under Article 29 TEU, it has been argued by some scholars, that Article 7 TEU should be (re)interpreted in a way as to separate procedures under Article 7(2)
and 7(3) whereby, Article 7(3) TEU could be applied even without prior unanimous determination by the Council of a clear risk of a serious breach of EU values, and applied in a targeted manner, that is, to suspend State’s participation in individual decisions for the purpose of neutralising its veto power with the suspended Member State nevertheless remaining bound by its EU obligations.
and
To ensure that sanctions are not lifted before Russia pays reparations, it is essential to make sure that the asset freeze (immobilisation of CBR assets) is continuously applied. One option for this would be a decision confirming that a QMV can be used for prolonging sanctions under Article 31(2) TEU (section 3). …..
Prolongation of restrictive measures concerning immobilisation of CBR assets on the basis of Article 31(2) TEU, whereby a QMV decision can also be taken ‘when adopting any decision implementing a decision defining a Union action or position’. A political agreement at the EU level has already been made in this regard, that ‘Subject to EU law, Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war’;
So; there seem to be two ideas to side-line EU member Hungary; either say they are ‘un European’ and simply suspend them. Or; interpret a rule such that a decision about a previous decision can be taken by QMV.
How do they rationalise the actual mechanics of the heist?
The decision of the confiscation of assets resulting in the permanent deprivation of property has to be, however, differentiated from the management of assets.106 It seems that the current proposals of the EU on the establishment of the EU instrument and subsequent reparations loan go in the direction of the management of the CBR assets (rather than confiscation per se). In particular, the CFSP decision, and in particular Article 215 TFEU, could be used to operationalise the newly established EU instrument to oblige CSDs to make the proposed investment of matured cash balances in the EU Instrument, allowing for a derogation by CSDs from their applicable rules on management and investment of central bank assets. As will be explained below, this would be a temporary and reversible measure, it would be lifted once Russia ceases its aggression and pays reparations to Ukraine and is thus not considered as a confiscatory measure. (see Section 5.1.4. below).
It seems that the key is that the plan as to how to steal the assets is presented not as a new step but simply as managing the currently frozen assets. It seems this may be how the Commission is trying to pitch this to the Ministers as a QMV decision. (That means that Belgium will be one more discontented EU member – making an increasing number).
How does the plan actually work?
A quick recap. The plan works like this. The assets of the Russian Central Bank held at Euroclear have been invested by Euroclear in the European Central Bank. Under the plan, Euroclear will be ordered, (I am not quite sure how that works), to ‘invest’ them with the Commission instead. In return Euroclear will be given IOUs by the Commission backed by the member states. By this mechanism the assets have not been touched. Simply that Euroclear has chosen a new investment partner!. Once von der Leyen and Kallas have got their hands on the funds they will send them to Ukraine to buy European and US weapons with, and to prop up the Ukrainian economy. How will this gap ever be filled? After the war, Russia will pay reparations to Ukraine who will pay back the money to the EU, who can use it to return Russia’s assets to them when sanctions are lifted. Obviously, this part is phantasy. But, the guarantee for the EU is that it is they who get to decide when sanctions are lifted, so they can put off this moment, until Russia has paid reparations – i.e, indefinitely. This is why, see above, it is so important to find a way to put the prolonging of sanctions onto a QMV basis.
Summary
I’m not 100% sure what the legal basis for putting the stealing of the assets onto a QMV basis is, but it seems to be something to do with presenting it as just about how the assets are managed, rather than actually stealing them. (After all, Euroclear, it is argued, still has bits of paper with a nominal value written on them). The overall plan depends on postponing the EU ever having to return Russia’s money until Russia has paid reparations to Ukraine, for which it is essential to exclude Hungary from having a veto on the question of prolonging sanctions.
Afterword: spending the reparations in advance! Who, then, will pay to rebuild Ukraine?
One final thought. This is, apart from anything else, a nice example of how Western elites are so addicted to debt. Let’s assume that this all happened exactly as planned. That would mean that, after the war, Russia would pay reparations – but Ukraine would already have spent the money on the war. So, apart from anything else, in even their own terms this seems to actually cancel out the reparations. by spending them before they’ve even arrived! Who then would actually have to pay for the rebuilding of Ukraine? The EU would be on the line for a very large part of it; they couldn’t leave a large failed state on their doorstep. So – it isn’t even true that this has no cost to EU citizens. They might as well just borrow the money. (This obvious point I have seen nowhere in the media). One imagines that the real driver here is spite – and the thrill of actually stealing the money.
And; the other rarely, if at all, discussed problematic with this plan is that it envisages eternal war with Russia. A 1000 year Reich opposed to Russia. Any possibility of a post-war settlement and re-integration of Russia with the European economy is precluded. Phantasies aside, Russia is never going to pay reparations. So; the EU would have to keep the asset freeze on, literally for ever. But that, in turn means permanent hostile relations with Russia. For as far as the eye can see. The alternative, and probably more likely scenario, is that a future EU leadership will understand that they have to do business with Russia – and they would have to return the stolen funds; with interest, in a humiliating and costly climb-down.
Von der Leyen is not just stealing from Russia. She, and the others, are probably driven largely by vanity; a desire to imagine themselves in a certain way. They dream, perhaps, of doing something daring, and of ‘getting one over’ on Russia. They also, it seems, simply like war. (Von der Leyen, in particular, always arrives in Kiev with an incongruous grin – stretching from ear to ear, as if this were all some sort of EU jolly).
Von Der Leyen’s plan is all about theft; she plans to steal the Russian assets from Russia, any future reparations which Ukraine receives from Ukraine, and the taxes of future European citizens from future European citizens, to pay for all this, which is, essentially, her person vanity project.
(See also my previous article about the Russian assets).
Notes