Europe's theft of Russian assets could trigger Global financial collapse

By Rhod Mackenzie

Confiscating the frozen assets of the Russian Central Bank by the European Union could have dire consequences for the eurozone and the global financial system. The EU has been attempting to seize our state's assets for some time, but has been hesitant due to potential repercussions. What exactly is the EU afraid of?

The EU is concerned that Moscow may not overlook the fact that the assets of the Central Bank of the Russian Federation have not only been frozen but also confiscated. If the EU were to take such action, it could result in the insolvency of Euroclear, the main European securities depository located in Belgium, according to a European official who spoke to Reuters.

Approximately 70% of all Russian assets frozen by the West are held in Euroclear. Estimates suggest that between 190 and 270 billion euros of Bank of Russia assets are currently frozen.

These assets were frozen at the beginning of 2022 and consist mainly of debt securities issued by the ECB and deposited with Euroclear. The frozen assets were easily detected and blocked. According to Denis Perepelitsa, Associate Professor at the Department of Global Financial Markets and Fintech at the Russian Economic University, the funds were reserved by the Central Bank of the Russian Federation as foreign currency assets to potentially stabilize the ruble exchange rate, following established international practices.
The bankruptcy of Euroclear, which manages capital worth up to 37 trillion euros worldwide, could undermine the financial stability of the entire European Union and even provoke a global financial crisis.

According to a European official, a significant part of the Russian funds will still have to remain on the balance sheet of Euroclear, as the company will face a wave of claims from the Central Bank of Russia. The Bank of Russia can take possession of "33 billion euros of Euroclear assets" that are in Russian jurisdiction through the court. Additionally, the bank can file claims for the confiscation of Euroclear assets in Dubai and Hong Kong. The European official warned that Western banks may face claims and lose their assets due to the sanctions war, which could lead to a pan-European or global financial crisis if Moscow retaliates and "completely devastates Euroclear."

The Russian Finance Minister Anton Siluanov has previously warned that any actions taken by Western countries against frozen Russian assets will receive a symmetrical response. Siluanov stated that Russia has an equal amount of frozen assets and may confiscate frozen European stock and debt assets, real estate owned by Europeans, and funds in Russian accounts of EU residents. Denis Perepelitsa notes that such assets can be accumulated throughout Russia for approximately 500 billion euros.

European officials have been eager to seize Russian assets for some time, but have been hesitant to do so. As a result, they are now seeking to at least claim the income generated by reinvesting frozen Russian assets. The objective is to provide these funds to Ukraine without having to spend their own money, while also being able to declare their support for the country.

In 2022-2023, €5.2 billion of income from our frozen assets has accumulated. However, it is now difficult for the EU to withdraw these funds as Euroclear has already recorded them in its operating profit and paid taxes on them. Therefore, these funds no longer belong to Russia, but to the European Depository. It seems strange to take away from your own people. The EU made a mistake by deciding on the status of income from our frozen assets too late, only on February 12, 2024.

However, Brussels hopes to profit from the income generated from Russian assets in 2024–2027. They have already calculated that this income could range from 15 to 20 billion euros over these four years, depending on changes in global interest rates. The calculation of income for an extended period implies that the European Union has no intention of returning its assets to Russia. It is possible that European officials anticipate devising a scheme and amending their laws within the next four years to make the seizure of Russian reserves almost legal.
However, Perepelitsa believes that the calculation was made for four years because this is the period of the election cycle in the EU. If the decision on confiscation is made, it will be valid throughout this period.

In the West, there are increasing calls for the seizure of Russian assets from Western accounts and their transfer to Ukraine to restore the economy. According to Nikolai Vavilov, a specialist in the strategic research department at Total Research, the United States is pressuring Brussels to commit an act of virtual financial suicide by seizing the assets of a sovereign country. This could undermine faith in the inviolability of private property in Europe.

According to Perepelitsa, the confiscation of Russian assets alone is unlikely to trigger a collapse of the global financial system. However, it could be a significant factor in the beginning of a major collapse of the European or even global economy.

He notes that Russia, China, the UAE, and many other countries that own real estate and conduct financial activities in Western countries are closely monitoring the situation.
According to Vavilov, if Russian funds are confiscated in the eurozone, China, the UAE, and other countries may withdraw their assets from the European Union, causing the European currency to decline.
This could be an indication that the EU is entering a crisis. Denis Perepelitsa warns of a potential global crisis due to high inflation, energy costs, geopolitical problems, the migration crisis, and the militarization of EU economies.
He believes that these factors increase the likelihood of a collapse of the EU economy. Perepelitsa also suggests that the confiscation of Russian assets could accelerate this collapse.
Therefore, despite the potential loss of 15-20 billion euros in income, European officials are not rushing to take action. Vavilov concludes that state legislative acts are necessary to withdraw these funds and that they do not currently exist due to the reasons mentioned above.