by Thomas Kolbe
Euroclear and the Looming Breach of Trust
The
alliance financing the war in Ukraine is facing a new problem. Seven
members of the European Union want to block the expropriation of the
Russian central bank assets held at Euroclear. This puts the
continuation of war financing at risk. At the same time, the specter of a
financial crisis looms—one that would once again leave taxpayers
footing the bill.
The negotiation marathon between representatives
of Ukraine, the EU and the United Kingdom, with a US delegation acting
as mediator, continues in Berlin. As usual, it is accompanied by
familiar phrases about “progress” on the road to peace and assurances
that roughly 90 percent of the target has already been reached.
How
much weight this interim result actually deserves will become clear in
the coming days. Expect a frantic ramp-up of the propaganda machine,
drones over airports (and over Wolfram Weimer’s residence), and growing
pressure on US President Donald Trump. The militarily precarious
situation of Ukraine’s armed forces is now colliding with an almost
equally dramatic financial situation among Kyiv’s creditors.
Everything
points to mounting pressure to cut the Gordian knot—sooner rather than
later—as war costs on both sides threaten to spiral out of control.
This
brings the latest developments in the debate over the expropriation of
the Russian central bank and its assets parked at Euroclear back into
sharp focus.
A Critical Demarcation Line
Euroclear could
turn into a personal Waterloo for EU Commission President Ursula von der
Leyen. She is working at full throttle to convert the current crisis
into a massive expansion of power for Brussels—and thus for her
Commission.
Hungary, Slovakia and Belgium—already outspoken
critics of expropriating Russian assets—are now joined by Italy,
Bulgaria, Malta and Cyprus. Resistance to Brussels’ escalation push is growing by the day.
Notably,
this resistance coincides with a clear shift in timing. Since the
United States effectively withdrew from financing Ukraine, Europe’s
financial reality has come into view without cosmetic filters. Without
access to roughly €210 billion in Russian assets—about €25 billion of
which are spread across various EU states—continued financing of this
war of attrition appears barely feasible.
All major
creditors—Germany, France and the United Kingdom—have long overstretched
their budgets and are running new debt levels between four and six
percent. The Ukraine project is on the brink of fiscal collapse.
The Illusion of Expropriation as a Lifeline
What
is being attempted is as simple as it is dangerous. These assets—partly
government bonds, partly matured bond holdings in foreign
currencies—are to be used as collateral for further loans. Europe is
already trapped in a debt spiral and is tapping every remaining source
of funding. Even the enemy is no longer off-limits for the
London-Brussels tandem.
Observers with a sensitivity for political
phraseology and grandiosity understood as early as April 2022 what was
unfolding: in a state of euphoric overconfidence, decision-makers
catastrophically miscalculated and constructed a scenario in which a
defeated Russia would be forced to pay for the entire war. This would
have allowed Europe to neatly extract its own banks—deeply entangled in
Ukraine’s financing—from the equation.
History offers a familiar
pattern: bankers and politicians working hand in hand, this time in
Kyiv. Many were already anticipating the day of Putin’s submission,
followed by regime change in Moscow and the launch of large-scale
extraction of Russia’s immense raw-material wealth. Europe’s banking
system would have been recapitalized to the rooftops, and the energy
problem solved once and for all.
That calculation has clearly failed. Instead, the taxpayer will bear the losses.
Ukraine as a Systemic Risk
Without
credit guarantees, Ukraine would already be insolvent. A disorderly
collapse of the state would hit the European banking system like a
nuclear detonation. There is no realistic way around the public sector
eventually absorbing these massive loan liabilities.
This
inevitably brings the debate over expanding Eurobonds—formally
prohibited under EU law—back to center stage, potentially reintroduced
outright as European war bonds.
With the “NextGenerationEU”
program, this supposedly forbidden practice has already become de facto
reality. Brussels has raised €800 billion on capital markets through
this mechanism. These funds fuel the EU’s bloated subsidy machine and
are now structurally embedded in its power architecture, always
backstopped by the ECB.
Brussels is already acting as a sovereign
bond issuer in its own right, further increasing member states’
liability exposure and debt levels. Europe has maneuvered itself into
both a geopolitical and financial dead end—an outcome that has been
foreseeable for years.
Euroclear and the Looming Breach of Trust
The
chronic reality denial and embedded incompetence of EU and UK political
leadership defy rational explanation. All the more notable is the
emerging resistance around Euroclear—even as Brussels searches for ways
to force the decision through by simple majority if necessary.
There
is reason for cautious optimism that countries like Italy understand
what expropriating Russian central bank assets at Euroclear would mean
for the eurozone’s financial stability. Italian Prime Minister Giorgia
Meloni’s initiative to discreetly safeguard Italy’s central-bank gold
against potential ECB access underscores that Rome knows exactly what is
at stake. Italy would be well positioned for a potential reboot of a
sovereign currency.
The damage caused by expropriating Russian
assets would be maximal: a financial super-GAU, a total loss of
credibility and of the merchant-law principles indispensable to banking
and international transactions. The entire global financial
system—transaction settlement and custodial asset holding—rests on
trust: on the absolute stability of its core pillars.
Institutions
like Euroclear are among those pillars. They do not merely safeguard
international transaction flows—they make them possible in the first
place. Once this foundation is damaged, far more than a political signal
is at risk. The stability of the entire system is on the line.
