Dmitry Orlov

Back in 2022 the European Union froze Russia’s sovereign funds. Estimates vary, but the total adds up to something around $300 billion. A lot of this money is held in Euroclear in Brussels, Belgium. As the situation stands at the end of 2025, the United States has stopped funding the financial black hole known as the Ukraine. The European Union tried to take over but it turns out to have no money to do so.

Various plans have been floated for making creative use of Russian sovereign funds to plug the black hole. So far, none of them came to fruition. The latest plan was to have the European Central bank issue loans backed by Russian funds. Not only would this have amounted to simply printing the money (since the backing is but a ruse), but the US Federal Reserve would have had to approve a dollar-euro currency swap. The euro, you see, is not an independent currency but a sort of financial mini-me to the US dollar. In any case, the Fed refused to do so and the entire plan flopped.

Among all of the discussion of this topic I have seen so far, I haven’t seen any mention of what is actually being attempted. At the core of it is the fact that the Russian funds are not money but debt. Frozen Russian funds consist of eurobonds. That is, the Russian government purchased eurobonds and deposited them in Euroclear. If the EU were to abscond with these Eurobonds, that would be a repudiation of this debt. That’s fantastic — less debt! — but where’s the money? The EU members have already spent the money the Russians gave them when purchasing these eurobonds. To actually come up with more money to stuff into the Ukrainian financial black hole, EU would have to borrow it — for example, by, you guessed it, selling more eurobonds.

Now, appreciate the imbecilic nature of the EU’s stance. The EU freezes some sovereign funds, pending the resolution of a military conflict. So far, so good, that’s normal practice. But these sovereign funds consist of EU debt, and the EU is proposing to take possession of this debt, in effect, refusing to pay it back. At this point international investors do their best to decrease their exposure to eurobonds. Yields on eurobonds go up to compensate, making it even more expensive for the EU to continue running large fiscal deficits.

But what has the EU accomplished (other than raising the interest rates it has to pay on its debt)? Why, nothing! It has exactly the amount of money it started with but has suffered some significant reputational damage. If it still wants to stuff some more money into the Ukrainian financial black hole, it would have to borrow it — by selling some more eurobonds but at a higher yield. Is that a win for the EU? I don’t think so!

But that’s not all. Russia will not look kindly on having the EU abscond with its sovereign funds. In fact, it has already made provisions for confiscating equivalent amounts of EU assets held in Russian banks and nationalizing EU investments in Russia. Not only is that real money, not debt instruments, but quite a lot of that wealth is in the form of stocks of actual companies, currently under EU ownership, that would pass to Russian state ownership, along with plant and equipment, employees, inventory and market share. Is that a win? I still don’t think so!

1. Ukraine is on its last legs, guaranteed to lose the war, its army melting away and its government mired in corruption scandals. Throwing more money at the Ukrainian financial black hole would be simply a waste.<

2. Frozen Russian sovereign funds held by Euroclear are in the form of eurobonds. If the EU stole this money, it would simply be refusing to pay back $300 billion of its own debt. This would not give it any money (it has already spent the Russian money which was used to buy these bonds) but it would certainly hurt its financial position and complicate further borrowing and deficit financing.

3. The EU would gain nothing, but it would lose actual, real money and brick and mortar assets it had built up in Russia, including any future profits from them and any future role in the Russian economy.

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Via https://boosty.to/cluborlov/posts/d62d0834-98b4-4a5c-8754-f7925d6bbeab