Lagarde says US plan to increase debt against Russian assets carries legal risk


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Christine Lagarde, president of the European Central Bank, has cast doubt on US-backed proposals to use more than 260 billion euros of frozen Russian assets to finance Ukraine’s war effort, warning that they risked breaking international law.

Lagarde’s comments highlight a transatlantic disagreement over the desire to raise tens of billions of euros in debt for Ukraine, guaranteed 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 raised serious concerns among lawyers, including within the US administration.

“I have seen four different projects or proposals to circumvent what many other jurists or lawyers – including in some administrations in this country – consider to be a very serious legal obstacle which can be interpreted as a violation of the international legal order . » She added that work was “in progress” on the proposals.

“Moving from freezing assets to confiscating them and then eliminating them is something that needs to be looked at very carefully,” Lagarde said, warning that it could involve “a breakdown of the international order that you want to protect; that you would like Russia to respect.”

The G7 group of countries is divided over what to do with the 260 billion euros in Russian assets put on hold by the West since Moscow launched its full-scale invasion of Ukraine in February 2022.

Washington has backed the idea of ​​confiscating the entire reserves 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 kyiv only the profits generated by the underlying assets. But the question of using Russian reserves to provide greater sums to kyiv has become more urgent in recent months, as the war is now in its third year and additional U.S. aid to Ukraine is 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 should be considered with an open mind.

“The UK’s position has always been that everything must be in accordance with international law,” he said, adding that the UK had internal legal advice indicating that there were ways to extract value of frozen assets that complies with international law.

The issue of financial support for Ukraine will likely be the most important topic on the G7 finance ministers’ agenda when they meet in Washington on Wednesday, Hunt said.

Lagarde, a former lawyer, said there was “no doubt” about the principle that Russia should pay for Ukraine’s reconstruction.

But she added that “rushing its availability because funding is not available elsewhere – that opens up a whole series of other questions” about respect for the international legal order, financial stability and joint and several liability.

The ECB chief, who last year raised concerns 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 in the United States and more than 6 billion euros. 200 billion in the euro zone. She also highlighted the weaker position of the euro in international finance compared to the dollar.

European Economic Commissioner Paolo Gentiloni, who was also in Washington for the spring meetings of the IMF and World Bank, told the Financial Times that the pressing issue for Ukraine currently was military support.

On financial support, he said policymakers would “continue to explore other avenues” but the EU should focus on the immediate task of approving existing proposals to unlock windfall benefits linked to financial support. to frozen Russian assets. This would allow additional support between now and June that Ukrainians “absolutely need”, adding 3 billion euros to the 16 billion euros committed by the EU to kyiv this year.

Gintare Skaistė, Lithuanian Finance Minister, said in New York on Tuesday that the rules could be changed to allow the mobilization of Russian assets. “The legal system is created – it is not something that comes from God – so that we can find legally sound ways to achieve results that would be beneficial to democratic countries. [and] society and not having rules that help the abuser.

A senior US Treasury official said he would hold discussions throughout the week as “the leader of a global coalition working to deprive Russia of the weapons and money it needs to facilitate his unjust war.” . . we hope these discussions will include ways to unlock the value of stranded Russian sovereign assets to support Ukraine’s continued resistance and long-term reconstruction.” The official said the goal was 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.


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