EU’s ‘Frozen-Asset’ Gambit

American  Thinker 

The Commission is proposing to channel up to €140 billion of frozen Russian central bank assets into a complex “bond-for-collateral” scheme designed to support Ukraine’s war effort. However, the legal aspect of the plan raises too many questions.

At the heart of the global legal order lies the principle of state sovereignty — one nation cannot impose its jurisdiction on another without its consent (par in parem non habet imperium). This results in jurisdictional immunity, including immunity from execution. The International Court of Justice, the European Court of Human Rights, and EU courts have all consistently affirmed that sovereign assets, especially those held by central banks, are immune from seizure unless they are demonstrably being used for commercial purposes.

Article 21 of the UN Convention on Jurisdictional Immunities explicitly includes central bank reserves among the properties that are shielded from coercive measures. Thus, no EU member state has the legal authority to confiscate or transfer Russian central bank assets, regardless of existing sanctions regimes. Therefore, the Commission’s proposal rests on a precarious legal foundation, sparking costly litigation and setting a dangerous precedent for future disputes over sovereign wealth.

Stretching the Legal Framework

The Commission is attempting to legitimize its plan by invoking Article 122 of the Treaty on the Functioning of the European Union (TFEU). This article allows the Union to provide financial assistance to Member States in cases of “exceptional circumstances”. However, it was drafted with intra-EU solidarity in mind, not for the appropriation of foreign sovereign property.

Further bolstering its argument, the Commission points to Regulation 2016/369 of March 15, 2016 on emergency assistance within the Union. However, this regulation explicitly limits aid to situations arising within the EU’s territorial borders. As Ukraine is not an EU Member State, using this regulation as a legal justification for seizing Russian assets fundamentally contravenes EU law.

Collective Action, Individual Responsibility

Any confiscation plan is fundamentally flawed due to the unresolved tension between the sovereignty of individual Member States and the competence of EU institutions. The Union’s legal framework lacks clarity regarding the extent to which supranational authorities can legally seize assets belonging to a non-member sovereign entity under international law. Furthermore, the principle of EU legal supremacy conflicts with the obligations of Member States under ratified international treaties, which form an integral part of their domestic legal systems.

The European Union is not a party to key global agreements such as the United Nations Charter, nor is bound by bilateral investment or diplomatic accords that its Member States have signed individually. EU leaders appear to be relying on this “gap” in obligations: if challenged internationally, the Union could argue that it has no direct treaty responsibilities concerning Russian sovereign assets.

However, each Member State remains a sovereign signatory to these treaties and is therefore individually responsible for any breach of international law. Attempting to shield accountability through collective EU action would not succeed, as each participating country would be held liable independently. Should a resolution authorizing the seizure of Russian assets materialize, it would constitute concrete evidence of joint participation in an unlawful act.

Economic Shockwaves: Inflation Risks and Investor Confidence

Beyond the legal side, the EU scheme poses a threat to the stability of Europe’s financial system. The majority of Russia’s frozen reserves are held by Euroclear, the Belgian clearing house that also manages assets for numerous other countries. Forcing the use of Russian funds could expose Euroclear to lawsuits from its shareholders and severely damage its reputation as a neutral custodian.

The European Central Bank has already expressed discrepancy, warning that the EU plan would mean the direct monetization of EU expenditure — a practice prohibited under EU law due to the risk it poses to financial stability. Furthermore, according to the prominent American economist Milton Friedman, inflation is always and everywhere a monetary phenomenon. Injecting an extra €140 billion into the system without corresponding economic output growth is likely to fuel price pressures across the bloc, eroding real wages and undermining confidence in euro as a reserve currency.

From a market perspective, the prospect of expropriating sovereign assets could deter foreign investment, particularly from China, India, and the Gulf states, all of which are closely monitoring Europe’s regulatory environment. A decline in capital inflows would increase the inflationary shock, creating a damaging feedback loop that would harm both EU fiscal health and geopolitical credibility.

Moscow’s Inevitable Response: The Risk of Reciprocal Seizures

Moscow has warned that it will respond with “strong countermeasures”. While European courts may be reluctant to challenge sovereign immunity directly, Russian authorities can — and will probably — target European assets frozen in Russia. Estimates suggest that the value of these holdings is comparable to the funds that Europe hopes to redirect.

Belgian Prime Minister Bart De Wever has already reported pressure from domestic businesses urging caution: if Brussels proceeds, Moscow could seize European-owned factories and other strategic properties located in Russia. The EU risks opening a two-way door that would allow both sides to confiscate each other’s sovereign assets, thereby entrenching financial hostilities and diminishing any incentive for future cooperation.

Moral Problem: Aid vs. Escalation

The humanitarian argument for using the EU-based Russian assets is compelling: Ukraine needs all the resources it can get to rebuild infrastructure, restore energy supplies and provide basic social services. However, a significant proportion of the proposed €140 billion tranche is earmarked for military procurement, which could prolong the conflict.

This moral dilemma is further complicated by the ongoing corruption scandal in Kyiv, which raises questions about the transparency and effectiveness of aid. Critics argue that channeling frozen Russian funds into Ukraine could normalize a war economy rather than hasten peace, particularly when these funds could be used to negotiate a settlement that is acceptable to both parties.

The EU’s “Quick Fix” May Backfire

U.S. President Donald Trump has repeatedly emphasized that a negotiated settlement, rather than financing endless war, is the only sustainable path for Ukraine. However, by tapping into frozen Russian assets, the EU will inadvertently fuel Kyiv’s war effort, embolden Moscow to hold firm and hinder any potential peace settlement.

Even if European officials identify a “legal loophole”, they will likely face resistance not just from the law community, but also from the continent’s financial sector, business leaders, and economists, who are wary of the potential inflationary impact. The legal, economic, and reputational costs could far outweigh any short-term gain.

The EU is at a crossroads where geopolitics clash with law and economics. While supporting Ukraine is understandable, bypassing established international law and jeopardizing Europe’s own financial stability is a dangerous gamble. A solution that respects sovereign immunity, protects the euro area from inflationary pressure and funnels aid through transparent, civilian-focused channels would better serve European values and long-term security interests than a hasty, legally dubious cash transfer.