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Christine Lagarde, president of the European Central Bank, threw cold water on US-backed proposals to use more than 260 billion euros in frozen Russian assets to finance Ukraine’s war effort, warning they risked breaking international law.
Lagarde’s comments highlight a transatlantic rift over the push to raise tens of billions of euros of debt for Ukraine secured by future profits generated by Russian state assets frozen by Western countries.
Speaking at an event in Washington on Wednesday, shortly before Western finance ministers discussed the latest proposals, Lagarde said they were raising serious concerns among lawyers, including in the US administration.
“I have seen four different schemes or proposals to get around what many other jurists or lawyers – even in some administrations in this country – consider to be a very serious legal obstacle that can be interpreted as a violation of the international legal order.” He added that work on the proposals is “underway”.
“Going from freezing assets, to confiscation, to disposing of them is something that must be considered very carefully,” Lagarde said, warning that it could lead to “the breakdown of the international order that we want to protect; that you would like Russia to respect.”
After the inconclusive debate, the G7 group of countries said in a statement Wednesday evening: “We reaffirm our determination to ensure that Russia pays for the damage it has caused to Ukraine. Russia’s sovereign assets in our jurisdictions will remain immobilized until then, in line with our respective legal systems.”
He adds: “We will continue to work on all possible avenues through which immobilized Russian sovereign assets could be used to support Ukraine, in line with international law and our respective legal systems, with the aim of updating our leaders before the Apulian summit in June.”
The G7 is divided over what to do with the 260 billion euros of Russian assets held aside by the West since Moscow launched a full-scale invasion of Ukraine in February 2022.
Washington has supported the idea of confiscating the reserves in their entirety and handing them over to Ukraine, an idea that European officials fear could violate international law and destabilize financial markets.
EU countries would prefer to give Kiev only the profits generated by the underlying assets. But the issue of using Russian reserves to provide larger sums to Kiev has become more pressing in recent months, with the war now in its third year and further U.S. aid to Ukraine blocked in Congress.
British Chancellor Jeremy Hunt said on Wednesday that the US plan was “a really interesting idea” and that any proposals to exploit frozen assets needed to be looked at with an open mind.
“The UK’s position has always been that everything must comply with international law,” he said, adding that the UK had domestic legal advice that there were ways to extract value from frozen assets that are consistent with international law.
Lagarde, a former lawyer, said there was “no doubt” that Russia should be forced to pay for Ukraine’s reconstruction.
But he added that “accelerating availability because the funding is not available elsewhere – that opens up a whole host of other questions” about respect for the international legal order, financial stability and joint responsibility.
The ECB chief, who last year expressed concern about how asset confiscation could affect the international use of the euro, said there was a “huge asymmetry” in the location of assets, with only 6 billion dollars in the United States and more than €200 billion in the Eurozone. He also underlined the euro’s weaker position in international finance compared to the dollar.
European Economic Commissioner Paolo Gentiloni, who was also in Washington for the spring meetings of the International Monetary Fund and the World Bank, told the Financial Times that the pressing issue for Ukraine right now is military support.
On financial support, he said politicians would “continue to explore other avenues” but that the EU should focus on the immediate task of agreeing existing proposals to release windfall profits related to frozen Russian assets. This would enable further support by June, which Ukrainians “strongly need”, adding 3 billion euros to the EU’s 16 billion euro commitment to Kiev this year.
Gintarė Skaistė, Lithuania’s finance minister, said in New York on Tuesday that the rules could be changed to allow the mobilization of Russian resources. “The legal system is created – it is not something that comes from God – so that we can find legally valid ways to achieve an outcome that would be beneficial to democratic countries [and] society and not having rules that help the aggressor”.
A senior US Treasury official said he will host discussions throughout the week as “the leader of a global coalition that is working to deny Russia the weapons and money it needs to facilitate its unjust war. . . We expect these conversations to include ways to unlock the value of tied Russian sovereign assets to support Ukraine’s continued resilience and long-term reconstruction.” The official said the goal is to have “serious options on the table by the leaders’ summit in June.”
The White House did not immediately respond to a request for comment.