Analysts warn that the so-called reparation loans proposal revealed by the EU on Wednesday, which would transfer part of the over $200 billion in Russian assets frozen to support the Ukrainian war effort, might fundamentally alter the global economic landscape.
EU’s Reparation Loan Proposal Could Potentially Impact World Economics
The proposal of a so-called reparations loan to Ukraine issued by the European Union (EU) on Friday has analysts weighing the repercussions that such a move would bring to the economic establishment.
On Wednesday, the European Commission proposed issuing a loan to support the Ukrainian war effort by allowing it to borrow cash balances from EU financial institutions holding immobilized Russian Central Bank assets.
Nonetheless, while the proposal includes safeguards to avoid later retaliation from Russia, it has garnered opposition from several factions, including the U.S., as it could impact the dollar’s standing as a solid reserve currency.
Nikolay Gaponenko, Associate Professor at the Department of the Institute of Law and National Security of the Presidential Academy, told TASS that this opposition was not free and was substantiated by the effects of such a drastic measure.
He stated:
The U.S. is acting with restraint not because of sympathy for Russia, but because of concerns that asset confiscation would significantly undermine the status of the dollar and the euro as reserve currencies.
Belgian Foreign Minister Maxime Prévot ahas also opposed this measure, as he detailed that it would entail “consequential economic, financial and legal risks.” Euroclear, a key European financial clearing house that holds billions in Russian assets, is based in Belgium.
Economist Jim Rickards warned about a confiscation scenario last year, stating that even if some safeguards are taken, Euroclear has offices in Hong Kong that could be held liable. Rickards argued that this could result in the suspension of Euroclear’s operations, impacting trillions of dollars in assets.
Why It Is Relevant
The measure, if passed as is, would throw the financial world into disarray, given that it could be considered as a theft by Russia, and put Euroclear, Belgium, and the whole EU at risk of retaliatory measures that will surely come in due time.
In addition, it would accelerate the crisis of trust that other nations have in European and American custody providers, potentially fueling the creation of alternative systems to substitute those now controlled by these nations.
Looking Forward
As correctly declared by Prévot, the outcome of this proposal is unclear, as it has never been done before. The commission pointed out to the next council, which will be held between December 18 and 19, as a potential date for “reaching a clear commitment on the way forward.”
