The EU's Risky Experiment: Belgium, Euroclear, And Boundaries Of International Law

In a recent address to the members of the European Union, the Prime Minister of Belgium, Bart De Wever, expressed Belgium's inability to utilize the immobilized assets of Russia for funding Ukraine. He, however, said that Belgium does not want to pay any part of these assets to Russia either and, contrary to what other members are calling him, he is a “good boy.” The “freezing” of Russian state assets means that Russia cannot use them, including by selling them, but remains their owner. In official communications, the EU and the US describe frozen Russian assets as “immobilised.”

It is pertinent to mention that there is a legal distinction between frozen assets and immobilized assets. Frozen assets can be of any kind and may be owned by private or state entities; they are subject to sanctions. Immobilized assets refer specifically to sovereign reserves blocked under financial restrictions. In this instance, the sovereign assets belong to the Russian state, particularly the Central Bank of Russia. The Russian reserves are “immobilized” because they cannot be traded on the foreign exchange market or within the international financial system, and they simply sit in Euroclear, a securities clearinghouse based in Belgium.

Historically, there have been instances where States immobilized the central bank reserves of belligerent or defeated countries during wartime. In certain cases, such reserves were later subject to negotiations between the states concerned regarding their post-war utilization. However, such arrangements are far from routine and do not establish a precedent for the automatic allocation of immobilized reserves to third parties by expropriation.

In the current context, the Central Bank of Russia holds around €140 billion in Belgium's Euroclear. The European Commission wants to “transfer” these immobilized Russian sovereign reserves to Ukraine for its war efforts and reconstruction. In line with international law and United Nations General Assembly Resolution A/RES/ES-11/5 (2022), Russia must make full reparation for the damage caused by its war of aggression. It could be viewed as a “reparation loan,” implying that Belgium would not be required to return the money to Russia in the ordinary course. However, a practical impossibility may arise for Belgium if a peace treaty between Russia and Ukraine provides for reparations by Russia itself.

Notably, the reserves parked in Euroclear generate interest income for Belgium, and this income is taxed by the country, which further provides a fiscal advantage. The reserves immobilized in Belgium constitute a significant portion of Russia's foreign assets, though not all of them. Central banks generally maintain diversified foreign exchange reserves to manage currency stability and liquidity. Other European countries that are currently silent on the issue may also be holding portions of Russian reserves in their own financial institutions.

The idea on which the European Commission was about to rule, if not self-sabotage was certainly audacious. While temporary immobilization of state reserves during wartime is not without precedent, there has never been a case where a country expropriated or unilaterally transferred another State's sovereign assets for use in war or reparations. Even after the Second World War, expropriation of sovereign assets was not permitted. Though on the question of judicial scope, the International Court of Justice in Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening) (2012) reiterated that sovereign assets remain legally protected, even when the State in question faces international condemnation or sanctions. The question of paying reparations, though a legal one, lies solely between the two concerned States. In international law, sovereign immunity is a core principle, no host state can act in a way that jeopardizes the assets of another sovereign.

Another aspect of this potential blunder is the risk of trust deficit in Belgium's financial institutions and systems. If Russia demands the return of these funds after they had been transferred to Ukraine, Belgium would find itself in a difficult legal position. Such a demand could arise once war ends and an agreement between Russia and Ukraine is reached. Considering Belgium's economic scale, that scenario would be challenging. Upon failure to pay Russia, market sentiment could turn against Euroclear, which may face reputational and market risks owing to its exposure to geopolitical uncertainty, thereby further deteriorating the financial position of Belgium.

The Prime Minister rightly called for equitable risk-sharing among EU member states for this unprecedented risky experiment. The future course is yet to be seen, if executed there will almost certainly be a high-cost legal battle ahead, and it would not be wise to be the sole “Avenger” to preserve the Galaxy, other EU members must assemble to share the responsibility.

The author is an Assistant Professor at  IIULER, Goa.  Views Are Personal.