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With Ukrainian aid funds blocked in the U.S. Congress / Senate and other western countries struggling to financially pick up the U.S. share of this burden, talks are getting more serious in Europe and the United States to set aside $300 billion of Russian funds, a portion frozen in Western Banks, and use that to fund Ukrainian military aid.

Question: Have NATO / EU politicians discussed what are the pros and cons of spending the Russian frozen funds and how it can be done? (I am not asking for personal opinions but verifiable statements).

One consequence was given on 22 December, 2023 by Russia's Deputy Foreign Minister Ryabkov:

Moscow could sever diplomatic relations with the United States should it confiscate Russian assets frozen under sanctions, Deputy Foreign Minister Sergey Ryabkov said on Friday.

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  • Important note missed by both sides of the debate: spending Russian reserves in the U.S. is effectively a net loss for the American economy regardless of who the beneficiary is. As long as the funds are parked in America they’re a part of the U.S. economy - moving them out would thus hurt the US economy. Feb 4 at 20:41
  • @JonathanReez, Unless you confiscate them and then spend them in the U.S. to pay for that military aid. Although I think you are right. I believe they are discussing sending the funds to Ukraine to fund the government or reconstruction after the war.
    – JMS
    Feb 6 at 17:59

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Former US Ambassador to Russia Michael McFaul argues for such transfer, for two reasons:

  • Paying reparations for a violation of international law is a well-established norm.
  • It would be immoral to give these funds back to Russia.
  • It is immoral to ask American (or European) taxpayers to pay for Ukrainian budget support or eventual reconstruction and not to ask Russians to do the same.

By contrast, the US Treasury secretary Janet Yellen said in 2022 that:

  • The seizure was “not something that is legally permissible in the United States” without an act of Congress.

References:

Given recent Congressional debates on continuing U.S. aid to Ukraine, The Washington Post published an op-ed, discerning whether we should use seized assets of the Central Bank of Russia to pay for the war in Ukraine. I vote yes and believe that Congress should (1) approve new U.S. funds for Ukraine (the subject of this piece in Foreign Policy), and (2) pass the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act, which would transfer sovereign assets of the Russian Federation currently frozen in Western financial institutions to Ukraine. While the sum confiscated by the United States is just a fraction of the total currently frozen by the West, U.S. leadership will make it easier for Europeans to follow suit. Others disagree, making the case that doing so violates international law.

Read both viewpoints here: https://www.washingtonpost.com/opinions/2023/11/16/russia-ukraine-assets-seizure-sovereign-immunity/

Should We Seize Russian Funds to Pay for the War in Ukraine?


But the gist is as follows: paying reparations for a violation of international law is a well-established norm. And seizing assets of the Russian Central Bank and transferring them to Ukraine is the only realistic and feasible proposal, currently on the table, for how to force Russia to comply with paying reparations. Remember, Russia is one of the five permanent members of the UN Security Council (which, by the way, Russia currently chairs), hence they can always veto any proposals about reparations in that body. Additionally, as we write in the paper, “only clear-cut losers in wars pay reparations.” Two things here: (1) Russia has nuclear weapons and, therefore, as some argue, “cannot be defeated militarily,” and (2) Putin is an autocrat, who will bend the narrative however he wants, whenever it is convenient. For that matter, he might declare that Russia has completed its “special military operation,” and achieved all its military objectives in Ukraine tomorrow, or in a month's time. What is clear, is that Putin will not accept the international community’s verdict that Russia has lost and therefore will never pay reparations.

Moreover, it would be immoral to give these funds back to Russia. First, Putin violated some of the most central norms of the UN Charter when his army invaded Ukraine both in 2014 and 2022, annexed Ukrainian territory again both in 2014 and 2022, and then committed crimes against humanity against Ukrainian citizens. $300 billion is just one down payment on what Russia must eventually pay for these crimes. Second, Russia’s full-scale invasion of Ukraine, produced a spike in global oil and gas prices, meaning that Russia, a major exporter of oil and gas, profited from starting this war. These windfall profits were well above the value of the seized assets of the Central Bank of Russia. Third, it is immoral to ask American (or European) taxpayers to pay for Ukrainian budget support or eventual reconstruction and not to ask Russians to do the same. In fact, I think it would be political suicide for President Biden to agree to give Russia these billions back while asking Americans for billions more to help Ukraine’s case. This is just simply unfair.

Transfer the Seized Assets of the Russian Central Bank to Ukraine Now!


The Ukrainian government had previously called on its supporters in the west to seize Russian assets to create a reconstruction fund for Ukraine, but the Biden administration has demurred, with [the US Treasury secretary Janet Yellen] saying in 2022 that the seizure was “not something that is legally permissible in the United States” without an act of Congress.

Russia warns US and Europe over reports Ukraine may get its seized assets | Russia | The Guardian

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    "Paying reparations for a violation of international law is a well-established norm." <- Funny statement coming from a US official, but not false as such...
    – einpoklum
    Dec 22, 2023 at 20:05
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    @TimurShtatland: The US routinely disregards international law and has recently been making up its own "rules-based order"; and it is definitely not in the habit of paying other states reparations for its violations.
    – einpoklum
    Dec 22, 2023 at 20:55
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    @einpoklum On the whole, the US is more helpful than harmful to the rules-based world order. To give just a few recent examples, there are the US actions against: Russian aggression and threats since 2014 & especially since 2022; China w.r.t. its threats against Taiwan; Taliban violations of human rights in Afghanistan; North Korean threats against South Korea and Japan; Iran's support of terrorism abroad and violation of human rights; etc. Yes, one can say that there were also the wars in Iraq, Vietnam, etc. But the pros of the US policies far outweigh the cons. Dec 22, 2023 at 21:22
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    @TimurShtatland: The problem is the US' "rules-based world order". And your examples certainly show how it just boils down to the pursuit of its imperial interests.
    – einpoklum
    Dec 22, 2023 at 22:00
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    @einpoklum It may not make all that much sense from a non-Western perspective, but for many, far from all, Westerners, the USA achieved several things in the last 80 years: removing Nazis (w lots of help from the USSR) and avoiding a world takeover by Soviet Communism, a system explicitly geared towards world takeover. Now, if you want to figure out why that matters to us, read up some Solzhenitsyn, check out the history of the Khmer Rouge, the Great Leap Forward, Katyn massacre, Hungary 56, Czechoslovakia 68, mine fields to keep people in Soviet countries... Lots of stuff to ponder. Dec 23, 2023 at 7:50
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Yes. A good overview article here from the New York Times. They have debated and are still doing so. That much is no doubt.

The Biden administration is quietly signaling new support for seizing more than $300 billion in Russian central bank assets stashed in Western nations and has begun urgent discussions with allies about using the funds to aid Ukraine’s war effort at a moment when financial support is waning.

And, from the Russian side, as cited by The Guardian:

The illegitimate seizure of our assets invariably remains on the agenda both in Europe and America

So remains. Russia even threatens to deploy short and medium-range missiles in Europe or the Asia-Pacific region in response to this financial action.

The main argument against seems banks do not want to lose the reputation of being safe place to keep this money, and lots of attention to respect the property. Dollars and euro may lose reputation, preferring other currencies, even if these are not without they own problems. Due these reasons the early discussions ended more or less with conclusion "maybe better not now".

But as "collective west" seems running out of money to support Ukraine, the discussions are rising again. These assets are much more than Ukraine ever received.

Under the more recent plans as proposed by Belgian government, Kyiv could raise debt rather than using these money directly. The coalition supporting Ukraine would demand that Russia repays the debt and, if it does not, would seize frozen Russian assets instead (Financial Times, C.Cook, H.Foy, L.Dubois). The same source says there are talks about using at least interest rates for the Ukraine support. These alone amount to 4,4 billion per year or about.

This is now cooling down because EU help has passed, and US help has improved prospects to pass, so it is less critical.

Update: Britain is 'prepared to loan Ukraine all frozen Russian central bank assets in UK' (The Guardian).

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One more negative aspect missed by the other answers:

Transferring Russian reserves to Ukraine is a net loss for Western economies

Russian assets are mostly invested into bonds or simply deposited into bank accounts in the U.S. or the EU. This means that they’re effectively a part of the Western financial system and help support Western economies. If the West chooses to spend these assets to help Ukraine, this would still represent a net loss for the West either in the form of increased inflation or by harming the supply of capital available to Western businesses.

This would still be a net loss for the West if the funds were unfrozen and Russia moved them out into other countries. Thus the most profitable solution is to keep them frozen for as long as possible. You can certainly argue that saving Ukraine is more important than propping up the economy but the decision makers still have to contend with the fact that any transfer of resources is effectively a drain on their own taxpayers.

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  • I'm actually not sure it is so, from the economics standpoint. Any USD that US have moved out of country act as its debit for which it purchases services and goods (in this case for shipping to Ukraine, but they might as well send used stuff and buy new stuff for themselves). Any USDs they have inside the country are just numbers in a spreadsheet.
    – alamar
    Feb 6 at 10:42
  • @alamar, It does depend on how you spend the funds. Jonathan is correct if the Russian funds are given to Ukraine to pay for government operations or reconstruction which I believe is on the table. You are more correct if the Russian funds pay for U.S. weapons. I still think Johnathan is correct though, because it's not like the new stuff doesn't cost several times what the old stuff would cost. An F16 cost 8 million $ in 1980. Today's modern equivalent would be the F-35 is 10 times that number. That's true roughly for all the old weapon systems going to Ukraine.
    – JMS
    Feb 6 at 18:09
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    @alamar, All in $300 billion has been frozen across world. Some fraction of that in the US. Let's say the US has $100 billion and spends it all in 2024 an election year. That's still only .4% of the US 23 trillion dollar gdp. So while that would certainly help me with my bills, it's not going to hurt or help the US economy much. I would also say it's likely for Russia to retaliate and freeze and confiscate US/NATO assets in their control.
    – JMS
    Feb 6 at 18:18
  • @JMS by that logic you might as well spend $300 billion from the budget because it's supposed to be chump change. But those "chump changes" tend to add up and cause inflation, which voters in the US absolutely loathe. Feb 7 at 18:38

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