Europe as Collateral: How Brussels Turned Russia’s Reserves into a Permanent War-Finance Mechanism

Ursula von der Leyen’s latest scheme is to raise up to two hundred and ten billion euro in loans for Ukraine, backed on immobilised Russian sovereign assets held in Europe. The principal would remain “frozen”. The cash flows and the collateral value would be turned into a war time funding instrument, pushed through on a majority vote using Article 122 of the EU treaties, a clause designed for natural disasters and economic shocks, not for rebuilding the security architecture of Europe.

The sales pitch is familiar. Nothing is being “stolen”. The Union is simply responding to an economic disturbance caused by Russia’s war, in a spirit of solidarity, and using lawful emergency tools. The reality is more blunt. The Commission is testing whether it can turn emergency economic powers into a standing licence to override unanimity, weaponise third country reserves and move the costs of the war off national budgets and onto a captive collateral pool.

If it works, it will not only change the European Union. It will change the meaning of property and safe custody for every state that still holds reserves in Brussels or London.

From frozen interest to a collateral war chest

Britain has already run the pilot scheme.

When the United Kingdom decided to seize and withhold Venezuelan gold, then to spend the interest on frozen Russian reserves, it crossed a line. In the first Telegraph article we wrote on this, “Britain Is Spending the Interest on Russia’s Frozen Money. Some call it theft” , the point was simple: once you start spending the income on someone else’s assets, the distinction between freezing and expropriation is no longer moral, it is merely technical.

In the second article, “When Britain Turns Trust into a Weapon, It Cuts Its Own Throat” , we spelt out what that means for a services economy:

“Britain no longer lives from chimneys and shipyards. It lives from contracts, custody and faith in London.”

If London is no longer a neutral harbour for capital but an extension of foreign policy, foreign clients adjust. They quietly shorten maturities, trim exposures, change clearing venues. They do not need to make speeches. They simply stop trusting the system.

Brussels has watched this. It has already taken a further step by channelling the windfall profits from Russian assets held at Euroclear into funds for Ukraine. Now it wants the main prize. Not just the income but the capacity to gear the principal itself into a huge reparations loan, written into EU law as an emergency economic response.

You can call that creative. Or you can call it the continental version of the same mistake: turning the financial plumbing of a rules based order into a weapon, while assuming the pipes will carry on working as before.

Killing unanimity without admitting it

The immediate purpose of von der Leyen’s gambit is not even about Ukraine’s budget. It is about Viktor Orbán.

Sanctions decisions and foreign policy measures in the European Union still require unanimity. Hungary has used that to hold up rollovers of sanctions and packages of support for Kyiv. National vetoes on the six monthly renewal of sanctions are now a standing threat.

The Commission’s answer is to shift the key decision away from that track altogether. Under its scheme:

• The sanctions regimes that froze Russian sovereign assets nominally continue as before.
• A new emergency regulation under Article 122 would immobilise those assets indefinitely for economic reasons.
• The reparations loan, backed by those immobilised assets and by their profits, would be decided by qualified majority vote, not unanimity.

Orbán would keep his veto on paper. In practice, the main leverage disappears. Once the assets are immobilised and geared into a loan under emergency economic powers, any attempt to block a routine sanctions rollover does not unlock the funds. The veto becomes a gesture.

Even the Commission’s friends admit this is “extraordinary” and “awfully difficult on a number of legal points”. One senior official has put it more honestly: “If you ask me if we are driving straight into a wall, then the answer is yes.”

There is a coherent argument on the other side. If one or two captured governments can hold twenty five others hostage, the system ceases to function. Emergency clauses exist precisely for moments when normal procedure is paralysed. But once you concede that any political deadlock can be reclassified as an economic disturbance, unanimity ceases to be a safeguard and becomes theatre.

Belgium, Euroclear and the liability bomb

For all the grand talk about European solidarity, the key fight is taking place in a very small geographical space: Brussels, at Euroclear’s balance sheet and in the Belgian government.

Euroclear holds the bulk of the Russian assets in question. Belgium knows exactly what that implies. If the Union moves from frozen reserves plus windfall profits to a fully geared reparations loan, the obvious litigation and retaliation target will not be an abstraction called “Europe”. It will be a concrete institution called Euroclear, under Belgian jurisdiction, holding other people’s securities.

Belgium’s position is consistent. It wants other Member States to share the legal and financial risk explicitly. It worries that any eventual peace deal, with or without Donald Trump, could include a demand to release the funds. It knows that every step towards gearing the assets makes future reversal more complex and more expensive.

Independent commentators such as Gilbert Doctorow have translated that into plainer language. Turn Euroclear into the cash machine for a war loan and you put a target on the back of the euro area’s main securities depository. Any Russian retaliation, any countersanction and any clever lawyer looking for a defendant will naturally converge there.

You do not have to share Doctorow’s wider politics to see the narrow point. If the Union converts a central piece of its financial infrastructure into an instrument of permanent economic warfare, it should not be surprised if that infrastructure starts to attract hostile fire.

The irony is that Belgium, the state accused of blocking solidarity with Ukraine, is the one actor in this drama behaving like a serious risk manager.

Trump’s skim and the transatlantic scramble

Hanging over all of this is the American angle.

Donald Trump’s much discussed twenty eight point Ukraine plan contains a very specific financial idea. One hundred billion dollars of frozen Russian assets would be moved into United States led funds. Europe would be expected to match that with another hundred billion. The United States would keep half the profits from the investments. The rest would flow to Ukraine.

From Trump’s perspective this is elegant. The war is partly paid from Russian money. American financial institutions and the Treasury benefit from the flows. The political pain of direct budget contributions is softened.

From Brussels’ perspective it is alarming. If Washington succeeds in writing the terms of peace around United States controlled funds fed by Russian reserves, Europe becomes a junior partner. It loses control over the biggest potential lever it still has.

That is why the timing of von der Leyen’s proposal matters. This is not simply about protecting Kyiv from a future hostile White House. It is about locking in European control over the European pot of Russian money before anyone else can claim it.

In that context, the sudden willingness to stretch Article 122 to breaking point looks less like principled solidarity and more like a pre emptive asset grab dressed in emergency language.

Emergency as permanent operating system

Legally, there is an argument that this can be made to fit. The Court of Justice has been indulgent to past uses of emergency clauses. The Parliament’s own researchers have documented how Article 122 has gradually evolved into a general crisis tool. Academic lawyers have mapped the new supranational emergency regime that now sits on top of ordinary treaty rules.

Politically, we have lived through a decade and a half in which almost everything important has been done under some form of emergency branding: the financial crash, the euro crisis, the migration wave, Covid, energy prices, now the war in Ukraine. Every one of those shocks has been real. Every one has been used to bank new powers at the centre.

The pattern is now hard to deny. What were meant to be exceptional derogations have become the default operating system. Von der Leyen’s reparations loan is simply the latest and boldest instance. It takes the core logic of that system, act now and justify later, let the courts catch up years down the line, and applies it to the foundations of property and sovereignty.

At some point, the question stops being whether each individual use of emergency law can be defended in isolation. The question becomes whether the system is still recognisable as the constitutional order it claims to be.

Cutting through the public relations

Strip away the speeches, the threats and the invocations of “our values”, and three facts remain.

First, the European Union is on the verge of moving from using the profits on frozen Russian reserves to using the reserves themselves as collateral for a gigantic war loan, under emergency powers that were never written for this purpose.

Second, this move is explicitly designed to neutralise national vetoes on sanctions rollovers and to dodge the political pain of funding Ukraine directly from national budgets. It may be lawful. It is certainly constitutional in its effects.

Third, the precedent will not stay in Europe. Every state that still treats Brussels or London as a safe place to keep its savings will update its assumptions. Some will decide that the price of keeping money under Western custody is too high.

We said in our previous articles that once Britain turns trust into a weapon, it cuts its own throat. The same logic now applies to Brussels. You can use emergency law to unlock captive assets and paper over political fatigue. You can call it solidarity and you can deny that anything is being confiscated. You cannot do all that and still expect the world to treat your financial system as a neutral court of record.

At some point, your own clients quietly hand you the knife.

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