Frozen Russian assets and flying pigs

If Donald Trump wins the US presidential election in November, he has promised to end the conflict in Ukraine in a single day. Even if he had the tools to do so (he doesn’t), nothing in Mr. Trump’s history with Vladimir Putin suggests that he will accomplish this goal by bringing unbearable pressure on the Russian Federation. The more likely object of Mr. Trump’s unbearable pressure will be Ukraine. By threatening to terminate altogether American financial and military support for Ukraine, Mr. Trump could attempt to force the Ukrainian authorities to make significant territorial concessions to Russia, giving Russia the victory it has been unable to achieve on the battlefield.

This will leave Ukraine’s European allies facing an odious decision. They may either acquiesce in a resolution of this conflict that allows the aggressor to swallow huge chunks of its victim’s territory or face the prospect of continuing to finance Ukraine’s resistance on their own, without American help. The former will blow a chill wind over European countries that have significant Russian speaking populations and countries that previously belonged to the Soviet bloc. The latter option is, in all likelihood, both financially and politically unrealistic for European countries, many of which are already sporting debt-to-GDP levels well north of 100%.

In an apparent effort to Trump-proof at least some funding for Ukraine, the G7 leaders agreed earlier this year to launch a $50 bn loan for Ukraine that would be repaid over time from the earnings on the Russian Federation and Russian Central Bank assets that were frozen following Russia’s invasion in February 2022. While this is certainly a helpful measure, $50 bn will finance Ukraine for a matter of months, not years.

Why not, the reader may ask, simply sequester the entire corpus of the frozen Russian assets (roughly $320 bn, the lion’s share of it in Europe), place those funds in safe and neutral hands (such as the World Bank) and use the money to support Ukraine’s budgetary needs for several years to come, regardless of the outcome of the US election? The answer? Misgivings. Mostly European misgivings.

An outright seizure of the frozen Russian assets, some people believe, could stain Europe’s reputation as a safe place to hold international monetary reserves. Others fear retaliation against Western assets in Russia. Germany is said to view the word “reparations” with disrelish. Some members of the legal profession have expressed doubts about whether a seizure of foreign state assets would be consistent with international law. Still, others argue that the prospect of losing all that money might eventually induce Russian President Vladimir Putin to negotiate an end to the conflict.

Flying pigs

There are strong — we would argue, invincible — responses to all those anxieties. But the simple answer is that we have already splashed across this Rubicon. Indeed, our sandals are dry.

At its meeting in Hiroshima in 2023 and again at its meeting in Puglia earlier this year, the G7 leadership confirmed that the Russian assets will stay frozen until Russia both ceases its aggression against Ukraine and pays reparations for the damage it has caused. The likelihood of this second condition being satisfied is vanishingly small. It would require from Mr. Putin a public mea maxima culpa, an admission that his special military operation was harebrained and illegal, and a promise to devote a substantial part of his citizens’ wealth to recompensing the victims of his folly.

Such an outcome is not impossible, just wildly implausible. After all, the only things keeping pigs from flying are (i) anatomy and (ii) gravity.

Which then leaves the question, is there any difference — tactically, legally, politically or morally — between a perpetual freezing of a foreign state’s asset and an outright seizure of that asset? We think not. The result for the owner of the asset is obviously identical. Accordingly, once the G7 announced that Russia’s assets will remain frozen until such time as Mr. Putin agrees to do something that no one on God’s Green Earth believes he will ever do, all of the hand-wringing about an outright seizure of the assets became academic. The functional equivalent of such a seizure — a perpetual freezing of the assets — has already occurred.

In the unlikely event that Russia agrees to pay reparations, all monies disbursed to Ukraine from the seized Russian assets would simply be counted as a downpayment against that reparations liability. Russia would thus receive full value for the seized assets.

Leverage

In terms of negotiating leverage, however, there may be an important difference between keeping a Russian asset in perpetual cryogenic storage and liberating that asset for the benefit of Ukraine.

Perpetual freezing accomplishes nothing for the benefit of Ukraine and compels European and American taxpayers to shoulder much of the cost of keeping Ukraine in the fight. However, liberation of the assets would ensure adequate funding for Ukraine for years to come. Mr. Putin has little incentive to discontinue his aggression as long as he believes that American and European politicians and taxpayers will eventually grow fatigued with funding Ukraine’s defence against that aggression. The signs of fatigue are already clearly visible. Ensuring an adequate source of funding for Ukraine that does not rely on the continued generosity of Western taxpayers and the vagaries of their politicians might just induce Mr. Putin to reconsider his assumption that Father Time is a Russian ally.

The views expressed in this Frankly Speaking op-ed reflect those of the authors and not of Friends of Europe.