FT: EU plan to use Russian assets could threaten euro’s safe-haven status

Brussels’ proposal to use frozen Russian sovereign assets to back up to €210 billion in loans to Ukraine is testing the EU’s political, legal, and financial frameworks, while raising concerns among investors about the euro’s status as a safe-haven currency, according to the latest analysis by the Financial Times.

The European Commission has proposed a “reparations loan” for Kyiv, collateralised by Russian central bank assets held largely at Belgian depository Euroclear. The EU would borrow from Euroclear and lend the money to Ukraine at zero interest, with repayment contingent on postwar Russian reparations. Legal advisers argue the plan does not constitute confiscation, as Russia retains a claim to the assets, while sanctions would remain indefinitely to prevent their repatriation.

Investors warn the move could heighten geopolitical risk for euro assets. “Seizing Russian assets is an extremely sensitive issue,” said Christian Kopf, head of fixed income at Union Investment. Kevin Thozet of Carmignac added it could “question the reserve status of the currency,” requiring a “geopolitical premium” for holding euros. Some fund managers, however, note the market has long anticipated the risk of confiscation since the assets were frozen in 2022.

The European Central Bank has expressed caution. Earlier plans to involve the ECB as a lender of last resort to Euroclear were dismissed as illegal monetary financing. ECB President Christine Lagarde has warned the proposal “pushes the boundaries of international law” and could affect Europe’s global reputation.

Economists such as Karsten Junius of J. Safra Sarasin caution that undermining Europe’s rule-of-law image could weaken the euro over the medium term, though others see the ECB’s stance as positive for safeguarding its safe-haven status.

Political support for the plan has grown. Germany, previously aligned with the ECB in opposition, now backs the reparations loan, with Chancellor Friedrich Merz calling it essential for Ukraine’s solvency and ongoing defence efforts. Officials cite reassurances to international investors, the legal soundness of the proposal, and the lack of alternative funding methods as key factors behind the consensus.

Merz said on Thursday, December 4: “This money must flow to Ukraine; it must help Ukraine.”

By Tamilla Hasanova