SPECULUM VERUM
– One of the consequences of the war in Ukraine is that Euroclear, in the first half of the year, has registered 1,7 billions of euros in additional revenue. Euroclear is a dark but vital hub of the financial architecture in Europe: based in Brussels, it is the central depository for all bond trades and counts the public development banks of France and Belgium among its major shareholders, oltre a Jp Morgan, to the London Stock Exchange and the Chinese Central Bank. This is where the cash flows from euro investments owned by the Russian central bank are paid, when the bonds expire. But since Moscow's reserves are frozen by European sanctions, Euroclear cannot transfer funds to Russia: the money accumulates in Brussels and the platform reinvests part of it safely, generating coupon income.
Halfway through this year, the Belgian company held funds from the Russian Federation amounting to approximately two hundred billion euros. It is likely that by December almost all of Moscow's frozen reserves will sit in the accounts of the Brussels depository, and the flow of coupons from the 2023 it will reach around three billion. This is a situation without historical precedent: half of the liquid funds owned by the citizens of one of the world's largest economies — frozen — continue to produce new cash flows. Their more active management could theoretically generate up to ten billion or more per year.
These are the calculations that fuel the proposal of some governments and leaders in Europe or in the G7: use proceeds from reinvestments of Russian reserves to cover Ukraine's expenses; passing to Kiev not Moscow's money - it would be a violation of international law - but those generated by the management ensured by Euroclear of Moscow's own money. It would be a step, not without risks, to cover at least part of the above 40 billions of dollars a year that Ukrainian Finance Minister Serhiy Marchenko is asking for to allow his country to pay salaries, cover essential expenses and stay on your feet.
Inside the G7, This assumption deeply divides Europeans from the foreign policy establishment of the United States and the government of Canada, who are pushing hard for Brussels to use the proceeds from Russian funds. Even Europe within itself is torn over the proposal: the European Central Bank leads the opposition, while those in favor include the President of the Commission Ursula von der Leyen in its ranks. The latest move in chronological order was made by the French government: Paris proposes to segregate the flows of reinvestments of Russian sovereign reserves in a restricted fund, implicitly with a view to being used in favor of Kiev in the future.
It won't be easy at all. Over the summer, ECB President Christine Lagarde wrote to Charles Michel, his counterpart in the European Council, all the reasons for his coldness. Lagarde's letter remains confidential, therefore the exact contents are not known. However, the president of the ECB fears the negative consequences of such a move, even if it were legal in the form of a tax on Euroclear's "extra profits".. According to the ECB, the use of the proceeds of Russian reserves would signal to other emerging countries that the euro bond market is risky for them, because European authorities can seize deposited funds for political reasons. The euro's role as a global reserve currency would be threatened, if there were a gradual exit of large sovereign funds from European securities, the interest cost of Italy or France's debt could rise. These assessments have certainly pushed the governments of Rome in recent months, Paris and Berlin to oppose the confiscation and direct use of Russian reserves to finance Kiev.
A recent study by three ECB economists shows that this is not an unfounded fear. After the freezing of Russian reserves in 2022, the group of countries politically closest to Moscow has begun to accumulate more gold in their reserves, as an alternative to the euro and dollar. Recently the former leader of Brazil Dilma Rousseff, president of the Chinese-created New Development Bank, has begun to fuel the idea that the euro and dollar cannot really be trusted in emerging countries. Thus Europe is caught between two fires: on the one hand the imperative to support Ukraine at increasingly higher costs; on the other, the fear of losing weight in an international system that Russia's allies want to redesign in their favor.