Why EU plans to tap Russia’s frozen assets are moving forward

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Good morning. Good morning. A gunman who shot dead two people and injured a third in central Brussels last night remains on the run, in an attack that Belgium’s prime minister linked to terrorism. 

Here, our economics editor explains why duelling meetings today could be pivotal on finally finding a way to use Russia’s frozen state assets to help Ukraine, and our competition correspondent hears Reynders’ optimism about what Donald Tusk could mean for Poland’s blocked Brussels billions.

Defrosting

European efforts to tap into the revenues from immobilised Russian central bank assets received high-profile backing last week from Janet Yellen, the US treasury secretary.

Meetings in Brussels and Luxembourg today will show whether this can help overcome the difficulties of bringing the plans to fruition and funnelling the cash to Ukraine, writes Sam Fleming.

Context: The G7 allies froze more than $300bn in Russian central bank reserves following Russia’s full-scale invasion of Ukraine in February last year. The majority of those assets is caught in Europe, suspended in Brussels-headquartered Euroclear, the world’s largest clearinghouse.

Rather than seize the assets, some officials have advocated a levy on the excess, or windfall, profit made by Euroclear.

EU experts will meet in Brussels today to discuss how to move things forward, following a much-needed thumbs up by the G7 last week of the plans. EU finance ministers are holding separate talks with Yellen in Luxembourg today, during which they will also touch on the issue.

Belgium last week said it would use the corporate tax it already collects on Euroclear’s profits from the Russian assets to create a €1.7bn fund dedicated to Ukraine.

Mairead McGuinness, the financial services commissioner, told the FT that the move by premier Alexander De Croo’s government was “the start of something significant”, and that it was now up to member states to discuss further steps.

“We need to make Russia pay and this is the start of that process,” McGuinness said.

France’s finance minister Bruno Le Maire told the FT last week that he wanted experts to work on the plan through the end of the year, with the hopes of already using revenues from the Russian assets next year to support Ukraine.

But the discussions remain legally complex. The European Central Bank is still worried that if the EU seizes profits made on assets held by a foreign state, other central banks will drop their euro-denominated assets for fear of suffering the same fate — and endanger the whole currency.

Representatives of the ECB will attend the expert meeting in Brussels today.

While the G7 acted with extraordinary speed when it first froze the Russian assets, reaching a deal to tap into the proceeds would be far more laborious.

Chart du jour: Risky business

Retired diplomats rejoice: Companies are increasingly looking for experts to help them navigate political flashpoints such as Russia’s full-scale invasion of Ukraine, the fallout in the Middle East or China’s relations with Taiwan.

Money man

The election of a pro-EU government under Donald Tusk in Poland offers an opportunity to unlock stuck talks on the country’s €35.4bn pandemic recovery package, the EU’s justice commissioner tells Javier Espinoza.

Context: Poland’s Covid-19 recovery funds are stuck over objections from Brussels that judicial reforms enacted by the current government conflict with EU standards on rule of law. Tusk, who will probably command enough votes to replace that government, promised to mend ties with Brussels.

“If it’s possible in the near future in Poland to see reforms going back to a real respect to the rule of law, a real respect for the judiciary, it will be fine,” said Didier Reynders. “And, of course, it will be possible to unlock the money from the recovery and resilience plan.”

“We are looking at the programmes, we are looking at the results of the elections and more than that we’re looking at the reforms,” he added.

Tusk’s victory — and the prospect of progress on the blocked EU funds — saw Poland’s benchmark stock index jump 5.3 per cent yesterday. The country’s zloty gained 1.9 per cent against the euro, and its debt yields fell.

Poland’s parliament passed legislation in February aimed at meeting Brussels’ demands to adjust the judicial reform and thus unlocking the cash, but the country’s president Andrzej Duda refused to sign it into law. Slight wrinkle: Duda will remain in power for the next 10 months.

“We are open with a new majority . . . to assess the situation on the basis of the reforms. Only that,” Reynders said. “In a good or negative way, we only react when we have a real reform on the table.”

What to watch today

1. EU leaders meet for extraordinary council via video conference to discuss Israel-Hamas conflict, 5.30pm.

2. EU finance ministers meet in Luxembourg.

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