{"id":57520,"date":"2025-12-06T22:14:19","date_gmt":"2025-12-06T22:14:19","guid":{"rendered":"https:\/\/prosfunds.com\/?p=57520"},"modified":"2025-12-06T22:14:21","modified_gmt":"2025-12-06T22:14:21","slug":"will-the-eus-bid-to-use-frozen-russian-assets-hit-the-euro","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=57520","title":{"rendered":"Will the EU\u2019s bid to use frozen Russian assets hit the euro?\u00a0"},"content":{"rendered":"
\n

Brussels\u2019 contentious plan to use frozen Russian sovereign assets to backstop up to \u20ac210bn in loans to Ukraine is testing the EU\u2019s political and legal framework to the limit.<\/p>\n

But it could also have big consequences for the bloc\u2019s financial markets.<\/p>\n

Some fund managers warn that a move to use the frozen assets would drive up the political risks of owning euro assets, and even cast doubt over their status as a global haven.<\/p>\n

What is the commission proposing?\u00a0<\/h3>\n

The European Commission has proposed a \u201creparations loan\u201d for Kyiv, made against the Russian central bank assets, the bulk of which are held at Belgian securities depository Euroclear.<\/p>\n

The EU would borrow the money from Euroclear and lend it on to Ukraine at zero interest. Ukraine would be obliged to repay the money\u00a0after Russia pays postwar reparations, with the frozen assets acting as collateral.<\/p>\n

The commission and its legal advisers say this does not amount to confiscation of the assets, as Russia would still retain a claim on the cash and other assets.\u00a0<\/p>\n

A legal move proposed by the commission would indefinitely lock in the sanctions that have frozen the assets since Russia\u2019s full-scale invasion of Ukraine in February 2022, to ensure Moscow cannot repatriate the cash before it pays reparations. However, some states \u2014 most particularly Belgium \u2014 remain concerned about the plan.<\/p>\n

Why is this relevant to the euro?\u00a0<\/h3>\n

The euro is the world\u2019s second-largest reserve currency, with central banks holding low-risk Eurozone debt such as German Bunds in their rainy day funds. In 2024, the euro accounted for 20 per cent of global central banks\u2019 foreign currency reserves, compared with 58 per cent for the US dollar, according to ECB data.<\/p>\n

Policymakers have advocated for the euro playing a more prominent role internationally amid concerns over the status of the dollar this year. But a move to access Russian funds could make central bank reserve managers and other low-risk investors more nervous about holding euro assets, if it makes them seem more vulnerable to the risk of sanctions and geopolitical tensions. <\/p>\n

The risk, investors say, is of the kind of reappraisal that the greenback has faced in recent years, as a combination of US sanctions and the Trump administration\u2019s economic policies has left reserve managers wanting to diversify away, for example by buying up record amounts of gold.<\/p>\n

\u201cThere is a risk [from such a move] to the safe status of the euro,\u201d said Kenneth Rogoff, a Harvard professor and former chief economist of the IMF, but the currency was also threatened by the risk of \u201cfuture Russian encroachment on Europe\u2019s borders\u201d, he added.<\/p>\n

The commission\u2019s proposal was a \u201creasonable way\u201d to supply funds to Ukraine, he said, adding that Russia could still negotiate full repayment as part of a war settlement.<\/p>\n

How are investors reacting?\u00a0<\/h3>\n

Some investors argue there is a risk of undermining the euro\u2019s haven status, despite the single currency gaining more than 12 per cent against the dollar this year.<\/p>\n

\u201cSeizing Russian assets is an extremely sensitive issue,\u201d said Christian Kopf, head of fixed income and FX at German asset manager Union Investment.\u00a0<\/p>\n

If Europe wanted to enjoy a safe haven status similar to Switzerland\u2019s, \u201cit must not interfere with property rights\u201d, he said, adding that the rule of law historically has been one of Europe\u2019s big comparative advantages.<\/p>\n

<\/picture><\/figure>\n

Kevin Thozet, a member of the investment committee at asset manager Carmignac, said such a move would \u201cquestion the reserve status of the currency\u201d, saying the single currency could suffer as investors demand a \u201cgeopolitical premium\u201d for holding euro assets.\u00a0<\/p>\n

But others said Russia was a special case and the market had been aware of the risk of confiscation since the assets were frozen three years ago.\u00a0<\/p>\n

\u201cThis has just been prepped for so long now,\u201d said Robert Dishner, senior portfolio manager at Neuberger Berman.<\/p>\n

Why\u00a0is the ECB sceptical?\u00a0<\/h3>\n

The European Central Bank\u2019s concerns are twofold. An early version of the commission\u2019s plan was to use the central bank as a lender of last resort to Euroclear. \u00a0<\/p>\n

Euroclear holds the bulk of the frozen Russian\u00a0assets and might be liable to refund Russia if the country\u00a0successfully challenged the freezing of the assets in court. The ECB dismissed a lending promise to the institution out of hand, saying it was illegal, as it was akin to direct funding of governments. Such monetary financing is banned under EU law.\u00a0<\/p>\n

While Brussels\u2019 latest proposal does not involve an active role by the ECB as lender of last resort, its president, Christine Lagarde, still warned MEPs the plan was at least pushing the boundaries of international law. The proposal is something that is \u201cstretched [and] that hopefully is in compliance with international law\u201d she said this week, adding that Europe\u2019s global reputation could be at stake.\u00a0<\/p>\n

Karsten Junius, chief economist at Swiss private bank J Safra Sarasin, said the perception of Europe as a region with strong adherence to the rule of law had been one of its critical assets among global investors. Should this be undermined, investors in Asia and the Gulf may look elsewhere, potentially resulting in a weakening of the euro over the medium to long term.\u00a0<\/p>\n

The ECB\u2019s scepticism is being viewed positively by some economists.\u00a0<\/p>\n

\u201cThe ECB declining to provide backstop is positive for safeguarding the safe-haven status of the euro,\u201d said Mahmood Pradhan, head of macro at the Amundi Investment Institute.<\/p>\n

Its opposition to a backstop \u201cdraws a firm line\u201d between the ECB\u2019s monetary policy and the EU\u2019s support for Ukraine, he added.<\/p>\n

How have EU politicians responded to concerns?<\/h3>\n

Opposition in large Eurozone capitals to any move to tap the assets on the grounds of market destabilisation has steadily eased as the almost four-year-long war has ground on.<\/p>\n

Berlin\u2019s stance exemplifies that shift: Germany was previously in lockstep with the ECB in firmly warning against any schemes to use the assets, but Chancellor Friedrich Merz is now the driving force behind the reparations loan proposal.<\/p>\n

That is down to three factors, according to officials and diplomats.\u00a0Firstly, EU states have actively reached out to big non-European investors to assure them that such a move would not signal a new weaponisation of the euro and that their money was safe in the single-currency area.\u00a0<\/p>\n

Secondly, the loan proposal is legally sound in terms of it not amounting to a seizure of the assets \u2014 still a red line for capitals such as Berlin and Paris \u2014 as Russia retains a claim on the full amount, its proponents say.<\/p>\n

And thirdly, a political realisation that with EU national balance sheets already under pressure, there is no other alternative way to raise the sums of money that Kyiv requires to remain solvent and continue fighting in 2026 and 2027.<\/p>\n

\u201cThis is\u2009.\u2009.\u2009.\u2009the consensus at the European level. There are absolutely no differences of opinion on this,\u201d Merz said on Thursday. \u201cThis money must flow to Ukraine; it must help Ukraine.\u201d<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Brussels\u2019 contentious plan to use frozen Russian sovereign assets to backstop up to \u20ac210bn in loans to Ukraine is testing the EU\u2019s political and legal framework to the limit. But it could also have big consequences for the bloc\u2019s financial markets. Some fund managers warn that a move to use the frozen assets would drive […]<\/p>\n","protected":false},"author":1,"featured_media":57521,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[23],"tags":[],"class_list":{"0":"post-57520","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\nWill the EU\u2019s bid to use frozen Russian assets hit the euro?\u00a0 | Prosfunds<\/title>\n<meta name=\"description\" content=\"Brussels\u2019 contentious plan to use frozen Russian sovereign assets to backstop up to \u20ac210bn in loans to Ukraine is testing the EU\u2019s political and legal\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/prosfunds.com\/?p=57520\" \/>\n<meta property=\"og:locale\" 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