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Even though broader funding to Ukraine remains blocked by US House Republicans, the US still fully seizes all Russian central bank assets frozen for supporting funding to Ukraine I am trying to do. But in Europe, it has become clear that the only politically realistic approach to using Russian funds for Ukrainian funds is to take advantage of a much smaller windfall, equivalent to about 1 percent of Russia’s frozen funds. It is becoming.
Even though broader funding to Ukraine remains blocked by US House Republicans, the US still fully seizes all Russian central bank assets frozen for supporting funding to Ukraine I am trying to do. But in Europe, it has become clear that the only politically realistic approach to using Russian funds for Ukrainian funds is to take advantage of a much smaller windfall, equivalent to about 1 percent of Russia’s frozen funds. It is becoming.
The big question is whether that relatively small amount of money can be further narrowed down to provide Ukraine with a more substantial and sustainable source of funding. Ukraine is now more worried about the dire situation of its army, which lacks ammunition on the battlefield, than about post-war reconstruction.
“There is a huge financial crisis going on. Europe and the Western world are not seriously addressing this problem,” said Sovereign Strategist at RBC BlueBay Asset Management and fellow at British think tank Chatham House. Timothy Ash said. He estimates that Ukraine needs about 100 billion euros a year to fight Russian aggression and an additional 50 billion euros a year to rebuild.
In theory, most of that money is available. Since Russia’s all-out invasion of its two neighbors, there appears to be no insurmountable legal obstacle to seizing all of the roughly $300 billion in frozen Russian central bank assets held by Europe, the United States, and a handful of other countries. . years ago. What is missing is political will. A bill authorizing such seizures has not yet passed the full U.S. Congress (though it is possible that the bill could be incorporated into the latest Congressional effort to fund Ukraine), and Europe is worried about Russia’s retaliation. They are hesitant to take more aggressive measures for fear of
But gaining momentum in Brussels is the less controversial option of spending the roughly $3 billion a year generated from frozen Russian assets on Ukraine. It is part of a more ambitious proposal and faces many of the same legal issues, but more political pressure from major countries such as Belgium (which controls the bulk of Russia’s frozen assets). There seems to be some support.
Last month, the European Union formally ordered that profits accumulated from Russian assets be hidden and kept separate from underlying balances, with the aim of supporting Ukraine at a later date. Last week, European Commission President Ursula von der Leyen went further, arguing that the windfall could be used not only to pay for the eventual reconstruction of Ukraine, but also for current arms needs. On Monday, Ukrainian Prime Minister Denis Shmyhal said: Said Belgium is prepared to allocate a portion of the proceeds (mainly held at Belgian financial clearing house Euroclear) to cover Ukraine’s defense needs.
“All signs suggest European countries are poised to take advantage of the Euroclear windfall,” said Brad Setzer, an expert on capital flows and sovereign debt at the Council on Foreign Relations. Ta. “The only question is how assets outside Euroclear will be treated and whether there is a willingness to be creative to maximize income streams.”
Setzer, like many other economists, advocates for a more active approach to managing the Russian central bank’s captive assets – the current generation of around 3 billion euros per year is a floor, not a ceiling. , he said.
“3 billion is [euros] It’s the smallest number you can imagine. It should be bigger,” said Setzer, who is also a former U.S. Treasury official. Given that frozen Russian assets are likely to remain in place for some time to come, he is taking a more aggressive approach, such as investing the earnings accumulating in Europe in high-yielding US dollar deposits and even higher-yielding deposits. He insisted that. Government bonds of various countries.
This view is gaining support among financial experts, making the case for a more active use of Russian assets, both economically and morally. Mr. Asch proposed investing Russia’s proceeds in emerging market bonds, which could earn up to 10% a year. Another, more daring idea is to use the funds to directly buy Ukrainian government bonds and use Russia’s frozen treasures to guarantee Ukraine’s survival. Still other proposals include earmarking a small portion of the annual revenue for debt repayments on future joint EU bond issues and using it to raise a huge lump sum of money for Ukraine.
For Asch, finding ways to put frozen Russian funds to better use is a political imperative. European taxpayers have supported Ukraine to the tune of tens of billions of euros, but the Russians have not done so due to deep-rooted concerns about violating the supposed sanctity of Russian state property rights.
“Our taxpayers’ money is subordinated to Russian taxpayers,” he said. “We’re going to take the check for Russian aggression, but aren’t we going to hold Russia accountable for it?”
Since momentum for seizing Russia’s frozen assets began to build last year, the situation has changed in two related ways.
First, as von der Leyen made clear last week, these funds are not only being considered as a down payment on Ukraine’s estimated $400 billion to $500 billion reconstruction costs. Last year, a lack of artillery shells, advanced jets and long-range fire made a long-planned offensive in Ukraine difficult, but Russian forces shook off staggering losses earlier this year to regain control of the battlefield. was completed.
“It seems a little premature to talk about a complete rebuild,” Setzer said. “Ukraine is fighting for survival,” he said.One of the benefits highlighted by von der Leyen’s proposal is that it would provide a regular and predictable flow of funds for Ukraine’s weapons purchases. He said this could help start production of much-needed military supplies in Europe, which had been delayed until now.
“I think Mr. von der Leyen’s proposal is wise because if you accept my view and invest in 10-year bonds, this will actually become a stable future source of income for Ukraine and its arms purchases,” he said. That’s what I mean.” “So if you use it to buy weapons this year and next, you could incentivize more people.” [arms] production. “
More broadly, Europe’s (and America’s) struggle to outsource the fighting in Ukraine with relatively little spending means that other European countries would feel threatened if Russia wins Ukraine. However, the amount they will have to pay in the future will be much larger. More than billions of euros of Russian money today. Although European countries have increased defense spending to record levels, they remain far short of the unofficial threshold of 2% of GDP required of NATO members. Asch suggested that if Ukraine were to lose, Europe would have to increase defense spending by nearly 3%, to about 400 billion euros a year.
“Is Ukraine’s security a national security priority? Absolutely. So how do we finance it?” Ash asked. “Ultimately, we will do whatever it takes to get there, but the only reliable source of funding for Ukraine is Russian assets.”
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