Reuters warns of financial crisis due to Russian claims against Euroclear

After the end of the conflict in Ukraine, Moscow will “inundate” Euroclear with claims, which may force the Belgian Central Bank to revoke its license, a source told REUTERS . According to him, this could lead to a new financial crisis

The use of frozen funds of the Russian Central Bank threatens the Belgian depositary Euroclear with legal action from RUSSIA, which could lead to both its collapse and a new financial crisis. A senior European official told Reuters on condition of anonymity.

As the agency notes, Euroclear accounts for about 70% of all frozen assets of Russia in Europe, or about €190 billion. Belgium, which taxes Euroclear profits from Russian assets (at a rate of 25%), expects to receive €1 in 2024 alone . 7 billion taxes, of which €1.5 billion will be transferred to Ukraine by the end of the year, the source said.

According to him, as soon as the conflict ends and “all settlements are made,” the depositary will face a large number of claims, including from the Russian Central Bank. As an alternative measure, Russia could, for example, take away €33 billion of Euroclear stored in the national securities depository in Moscow, a Reuters source notes.

In addition, the source continues, Moscow may sue to confiscate Euroclear cash in securities depositories in Hong Kong and Dubai. Claims are also possible against Western banks that stored funds in Russia. “This is essentially a mechanism by which Euroclear can be completely drained,” he added.

The official explained that if Euroclear runs out of capital, Belgium's central bank would have to revoke its license, which would likely lead to a global financial crisis as Euroclear has €37 trillion in assets under custody.

After the start of the special operation in Ukraine, the EU and G7 countries froze about $282 billion (€260 billion) of assets of the Russian Central Bank in the form of both cash and securities, the US Treasury reported . Over two thirds of them were frozen by the European Union. Russian Finance Minister Anton Siluanov in 2022 estimated frozen assets at approximately $300 billion.

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There have been repeated calls in the West and in Kyiv to use frozen Russian assets to restore Ukraine. According to Kyiv (as of early February), direct damage from military operations amounted to $750 billion, and taking into account indirect damage, this is $1 trillion. EU countries last month approved a mechanism that provides for the use of windfall taxes from frozen Russian assets to help Ukraine. The proceeds are planned to be used to partially finance the €50 billion budget assistance program for Ukraine, adopted for the period from 2024 to 2027.

At the same time, concerns were expressed in Europe that the decision to use these funds could negatively affect the role of the euro as an international currency, as well as undermine the stability of the global financial system. As BLOOMBERG wrote , while the United States and Britain support the confiscation of frozen Russian assets, Germany , France , as well as the European Central Bank (ECB), on the contrary, are very cautious on this issue.

According to the agency, G7 officials and lawyers are currently exploring options for using Russian assets; They will present their ideas in June at the G7 summit in Italy. Among the options discussed:

• Using Moscow's reserves as collateral - in this case, complete confiscation is not provided, but the idea faces legal delays.
• The G7 states will provide a “guarantee” that frozen assets will not be returned to Russia unless it agrees to reimburse the costs of rebuilding Ukraine. As Bloomberg notes, this essentially means that, if necessary, Russian assets will be seized to repay Ukrainian loans.

The Russian Foreign Ministry warned that attempts by Western countries to seize Russian real estate and other assets would lead to an “adequate and effective” response from Russia. President Vladimir Putin compared these actions of Western countries to theft. The very blocking of assets abroad is considered illegal in Moscow.