Dilemma over frozen Russian assets in Europe

United States Treasury Secretary Janet Yellen wants the frozen Russian assets worth $300 billion to be monetised to be able to aid Ukraine even as it fights the Russians. The American aid of $61 billion to Ukraine is stuck in the Congress.

Yellen in an interview with Reuters news agency has suggested that there is need to find an airtight legal way to unfreeze the Russian assets. France’s Finance Minister Bruno Le Maire had rejected the proposal and challenged to find an alternative. Le Maire wants the tax on windfall profits of the frozen Russian assets to be used to aid Ukraine. Yellen is all for using the tax on windfall profits to be used as well, but she also wants other options to be explored as well.

She was at the G20 finance ministers’ conference being held in Brazil, and she was talking about the acute differences in the G7 countries on the aid to Ukraine. America finds itself in an embarrassing position because the public opinion for the Ukrainian cause has taken a backseat, while President Joe Biden considers it as a key ideological battle between democracy, on the one hand, and authoritarian states like Russia on the other.

Yellen said that European countries are not in favour of seizing Russian assets because of the Russian threat that there would be dire consequences if that is done. The European countries feel that this would be stepping up the tensions between the two sides and that it would be difficult to de-escalate.

They have suggested raising loans using the frozen Russian assets as a collateral, or even raising a syndicated loan. Yellen described it as an “interesting option”.  In her interview to Reuters she said, “There are complicated legal issues here. We agree that whatever we do has to have a firm international legal rationale, as well as domestic rationale.”

She disclosed that G7 leaders had asked their staff “to come up with as many viable options as we can, and to analyse both the benefits and costs associated with them.” She was not sure whether the G20 leaders can come up with an acceptable to solution to the problem by the G7 summit in Italy in June. She expressed caution in dealing with Belgium’s Euroclear, the clearing house which holds most of Russian assets. She said, “Euroclear is an infinitely important financial utility, and we must be exceptionally careful not to do anything that endangers its functioning.”

The G7 leaders are aware that they cannot take any hasty step against Russia not because of President Vladimir Putin’s warning about retaliation but because of the unforeseen effects on the European financial markets if the frozen Russian assets are mishandled in any way. The European Union (EU) countries are quite committed to the Ukrainian cause despite reservations of countries like Hungary, but they do not have the economic clout to support the Ukrainian war effort.

It is left to the G7 countries, the most advanced economies, to raise the necessary funds to support Ukraine. And among the G7 countries, it is the United States, the largest economy in the world, which is expected to foot the bill. Though the Biden White House is committed to the Ukrainian cause, the Republican-dominated Congress has refused to budge.

The Ukrainians would find themselves in the lurch if the US and the G7 countries do not find a way of financing the Ukraine war. It is true that Ukrainian people are fighting bravely, but they cannot fight without guns, planes and missiles. This is a huge responsibility on the shoulders of the leading Western powers that they should do what the can to keep the Ukrainians in the fight. Any step back on Ukraine will only embolden Russia to breathe down the neck of the smaller countries, including the Baltic republics like Latvia, Lithuania and Estonia.