Why stealing Russia’s frozen assets will help neither Ukraine nor the West

In the war in and over Ukraine, Russian forces are continuing an accelerating advance at the “fastest pace since 2022,” as the robustly Russophobic and gung-ho New York Times admits. On the Ukrainian side, the battlefield situation is “precarious,” the Washington Post recognizes, and signs of exhaustion and demoralization are increasing. American demands to add a whole fresh cohort of cannon fodder by lowering the conscription age, again, are finding a very mixed response.

Military mobilization is already deeply unpopular, much of it conducted by force, sometimes demonstratively so. Yet even Valery Zaluzhny, Ukraine’s bullheaded former commander-in-chief and potential rival of superannuated president Vladimir Zelensky is now opposed to mobilizing the youngest. It has taken him a while, but he has realized that a future Ukraine cannot exist without some young males left. A majority of Ukrainians, recent polls have shown, want a quick and negotiated end to the war, with many openly acknowledging that concessions to Russia will be necessary.

Meanwhile, the US, the single most important Western sponsor of the current Ukrainian regime and this war, will soon be ruled again by Donald Trump. Having promised to end the slaughter quickly – or, at least, American involvement in it – Trump has recently sent signals that he is serious. To add some fun, he has also started sharply criticizing Zelensky, publicly – and correctly – denouncing the Ukrainian leader’s serving as a cut-out to launch Western missiles into Russia as “foolish.” Trump’s son Donald Jr. and the president-elect’s new bestie, American oligarch Elon Musk, too, have ridiculed the Ukrainian proxy leader mercilessly. And no one has chewed them out for it.

That Trump and his team are thinking of solutions Kiev will not like is also confirmed by Zelensky’s recent pattern of desperately pretending everything is fine, while also occasionally lashing out in genuine frustration: Western media have been conspicuously silent about it, but on December 9 Zelensky clearly lost it: He went public with the gratuitously offensive – and wrong as well – insight that Trump hasn’t got any influence before the inauguration on January 20, and therefore it makes little sense to even talk to him. Someone in Kiev is definitely feeling cornered.

Against this background of proxy war endgame, you’d think that Western mainstream public discourse would finally become more realistic again. And some of it is. But what is remarkable is the opposite: How much delusional thinking still persists. Take, for instance, a recent article in the Financial Times. Under the title “It’s high time to make Russia pay,” its European economics commentator Martin Sandbu is trying to make the case for fully confiscating – at least in effect if not necessarily formally – those Russian central bank reserves that the West has been able to freeze.

With this suggestion, Sandbu is open about it, he is following in the footsteps of the new de facto EU foreign minister, Kaja Kallas. For those familiar with Kallas’s usual output – at once extreme and unintelligent, including fresh-faced public musings about the advantages of breaking up Russia – that is a giant red flag. And the warning is borne out in full.

But before getting into more details, a quick recap of the underlying issue: As part of its failed yet ambitious economic warfare campaign against Russia, the West has frozen Russian central bank assets to the tune of about €260 billion, two thirds of which are locked up with Belgium-based Euroclear. While inaccessible to their rightful Russian owners, these assets have still generated substantial profits of – according to Russian business paper RBK – almost €10 billion at Euroclear alone. This summer the leaders of the G7 agreed to “lend” Ukraine $50 billion. Yet it’s not really a loan but a gift-based-on-theft, since the loan is to be paid back from profits generated by the frozen Russian assets.   

For Sandbu, this is not aggressive enough, because he would prefer full confiscation. He proceeds to offer a jumble of false assertions and bad recommendations. While worse than useless on their own terms, as an argument about policy, they constitute a helpfully typical specimen of the delusional non-thinking the West will have to shed. Let’s start with the false assertions. Sandbu is unhappy not only because full de facto confiscation has not happened yet, but also because he finds the substitute “extraordinary revenue acceleration” scheme that is actually being implemented unsatisfactory.

The $50 billion loan to Kiev, he argues, “does not make Russia pay.” His contention is that the loan is fed “only” from profits generated by Russia’s frozen reserves and not from the principal, the underlying assets generating the profits themselves. What he fails to mention is the fact that Russia has long been clear about the fact that it – very plausibly – considers Western appropriation of both the assets themselves and any profits from them inadmissible. Moreover, Russian entities other than the central bank have legal claims on the frozen assets and profits, too, as mentioned in, for instance, the Financial Times itself. Which is why Russian counterparties are suing Euroclear. Their cases are solid enough for the clearinghouse company to have announced that it will distinguish between its ordinary profits and those derived from sanctions. Sandbu may dislike these Russian claims or believe that they should be ignored. Legal nihilism is, after all, fashionable now in the West. But the statement that creaming off the profits without Russian consent does “not make Russia pay” is factually false. 

Speaking of legal nihilism, Sandbu’s piece has plenty of that to offer as well, if in an appropriately delicate form. With reference to a study produced for the European Parliament, an institution drunk on bellicism and Russophobia, we learn that the “legal risk” of going farther than now by fully confiscating Russian assets is “low.” There are, Sandbu assures us with refreshingly frank cynicism, legal “arguments to serve whatever political decision is made.” And that is it, right there: the textbook definition of legal nihilism. Anything goes anyhow, because where there’s a political will, there will be a “legal” way. What is truly astonishing about this self-revealing and self-devastating passage is that Sandbu wrote it down and an editor was asleep enough to let it slip through. Anyhow, thanks for the candor.

But candor, otherwise, is not a forte of this Financial Times article. Take the line about Western taxpayers. Because, you see, the other thing that’s not okay about that fresh “loan”-steal-gift for Kiev, Sandbu laments, is that these taxpayers are not made “to sacrifice anything.” Oh, horror! That is, surely, what the vast majority of Western taxpayers love to hear from a probably materially comfortable member of the elite commentariat: it’s really mean when they do not have to bleed. 

But that, you may object, is merely daft upper-class conceit, but not dishonesty. Yet there is a fundamental inaccuracy here, too. The taxpayers of the West have been sacrificing massively already for their “elites’” moronic project of inflicting “strategic defeat” on Russia via proxy war in Ukraine. And they have paid in not one but two ways: First, by October of this year the EU had committed €241 billion and actually allocated €125 billion; for the US, allocations amount to the equivalent of €88 billion out of €119 billion committed. These are general figures summarizing a complex reality. But whichever way you slice them, these sums have of course constituted a massive burden on the West’s public finances and that means on its taxpayers. 

Second, the preponderant majority of Western taxpayers, at least in the EU, are, obviously, also suffering from the adverse economic effects of the failed sanctions war against Russia – a backfiring directly due to their “elites’” decision to spurn a perfectly possible compromise with Russia and instead “support” Ukraine to death over the moronic non-issue of an open non-door to NATO. 

Even by July 2023, a detailed study by the McKinsey consultancy, for instance, concluded that the economic fallout from the war has hit poorer people the hardest. “Low-income Europeans,” the consultancy experts found, were “most affected by inflation” exacerbated by “shocks in energy and agricultural commodities, among others.” With the lowest 20% of the income pyramid already before the war spending 73% of their earnings on basics,” McKinsey estimated that “outlays on housing, food, transport, clothing, health, and education” had increased by 9% since the conflict began. It’s a snapshot, but the gist should be clear: To deplore that Western taxpayers aren’t “sacrificing” is both deeply misleading and revealingly oblivious. There is, to paraphrase Oscar Wilde, nothing wrong with snobbery, if only it weren’t so tone deaf.

Finally, what if? What if the West as a whole – not merely Trump’s future US – stopped throwing money into a lost and bloody proxy war that does not even benefit Ukraine? Here, too, the Financial Times serves up a take so biased it can only be called disinformation. Invoking the authority of a single short and extremely biased study, Sandbu predicts that “Germany would lose 10 to 20 times more money from not supporting Ukraine than it at present spends to help the country.” And, clearly, he wants his readers to generalize: “You don’t say! Pumping hundreds of billions into a losing war while hamstringing our economies only looks like bad business. In reality – ask an expert! – it’s the best option available.” Really? Really? That’s your sell? 

One doesn’t even have to be very smart to understand just how perverse this argument is. All you need to do is click on the link to the paper Sandbu references. To make it short: its methodology is abysmal, for one simple reason: The authors ask about the costs – as they speculate about them – of not funding Ukraine and a resulting “Russian victory.” But they never even ask if a Russian victory can be prevented at all (no, it cannot) or, more importantly even, about the potential benefits of peace with Russia. And while those two things – ending funding and peace – are not exactly the same, they are closely related, so that an honest assessment requires estimates for both questions. In sum, the paper pays no attention to the perfectly plausible if politically taboo scenario of ending proxy war funding as well as economic warfare and repairing economic relationships with Russia.     

Given all of the above, is it any wonder that Valerie Urbain, the head of Euroclear herself, has just come out in a Bloomberg interview, warning the EU about the consequences of its reckless schemes? In particular, Urbain wants to have nothing to do with being held liable for their fallout. But she has also pointed out, as other observers, the “risks to the euro’s role as a reserve currency, as well as the broader stability of Europe’s finances.”

And yet, a perfect mix of the factually incorrect, the socially tone deaf, and the methodologically unsound – that is what a long Financial Times piece on the important question of how to deal with Russia’s frozen assets boils down to. It’s not simply wrong. It’s obviously biased out of its mind. And that, unfortunately, still holds for many of the West’s “elites.” What kind of shock will it take to finally sober them up?