Europe has been caught in the middle of the Russia and Ukraine saga. European capitals are delaying the decision to consider the potential consequences of a potential seizure of frozen Russian assets. This comes amidst the increasing challenges to the euro’s status as a reserve currency in a rapidly evolving global economy.
The West froze $300 billion in assets owned by the Russian central bank after Putin sent his troops into Ukraine three years ago. Most of this money is in Europe, mostly in the form of government bonds, the profits from which are used to back loans to Ukraine.
Europe has made a decision to help finance Ukraine’s survival. This is because President Donald Trump is preparing to withdraw U.S. support and instead negotiate with Vladimir Putin of Russia. In fact, European leaders have stepped up their support for Kyiv by promising to provide more security aid and form a coalition of the willing. However, what do they stand to lose?
Choices that Europe could make and their consequences
The US has been doing so much for Ukraine, including sending weapons and military aid. This means the Europeans will have to spend more on defense. However, it won’t be soon enough to replace the weapons from the US. Even European forces in Ukraine would not be enough to stop future Russian attacks without an American backstop, which Trump is done with.
But again, more than $200 billion in Russian assets are frozen in Europe. They could use the money to help Ukraine’s economy, military, and defense industry. That money would give Ukraine the tools it needs to protect itself and keep its economy going. It would also give Europe the power to negotiate a fair and permanent end to the war.
Dam Square is filled with friends of Ukraine today. Our message is clear: Europe needs to wake up!
Seize the 300 billion in Russian assets, build a European army, and bring Ukraine into the greatest democratic union on earth—the European Union🇺🇦🇪🇺.
Is that possible? I mean, during the Biden administration, Europe refused to help give those assets to Ukraine. The Europeans agreed with the G7 in the fall to lend Ukraine money backed by interest on the frozen assets, but they kept coming up with reasons not to take the capital.
There is disagreement about the legal reason for forfeiture. However, many legal experts agree that it is okay as long as it is done to stop Russia’s illegal aggression. The legal theory of set-off has been around for a long time and would let Ukraine net its claim for damages against Russia’s claim to get back its frozen assets.
However, Europeans are still worried that seizing Russia’s assets in Europe will not stop countries from holding euros any more than freezing these assets forever, which is what Europe and the G7 countries are already doing.
Even though almost no one thinks Russia will ever get those assets back, the actions taken by the US, Europe, the UK, and Japan to seize Russia’s assets in 2022 haven’t stopped people from keeping dollars, euros, sterling, or yen.
The euro is not more at risk than the dollar just because most of the frozen assets are in Europe. It’s not a secret that the US led the way in getting the G7 to freeze Russia’s assets right after Putin led his attack.
Congress overwhelmingly agreed last spring that the president should be able to take these assets for the good of Ukraine. Today, no possible aggressor country would think that the US is a better place for their assets than Europe.
Also, nobody thinks that Russia will stay put and not fight back. In fact, Russia has said it will punish foreign companies doing business there if Europe gives its frozen assets to Ukraine. However, this is a very small risk.
Any Western company that still has assets in Russia, whether real or not, has either already written those claims off or knows it will have to.
ECB President Christine Lagarde said, “This is not for the European Central Bank to debate, but I would certainly submit that the international law basis on which any decision is made will matter as far as other investors are concerned.”
The ECB does not make the final choice. Instead, the politicians in Berlin, Paris, and the other 18 capitals of the euro countries do. But they won’t dismiss Lagarde’s point of view.
Not to forget that the US is fighting Europe with tariffs as well. French Defence Minister Sebastien Lecornu said last week of threats by Trump to impose hefty new levies on European exports, “No-one has any interest in doing things that would weaken our system now, which is also being widely attacked elsewhere via trade, tariff, customs policies.” Clearly, Europe has a lot on its plate.
Meanwhile, the share of world currency reserves kept in euros has dropped from 25.8% in 2010 to 20% today. The dollar has even gone down a little, but it still makes up 58.4%.
What are the odds of Russia bringing the war to a close due to their steady economy?
In spite of the war and sanctions, the Russian economy has proved robust. Growth has been driven largely by sharply increased budget spending on the military.
However, the Russian economy is stagnating because its infrastructure and equipment are getting old, and little new technology is being developed.
For many years, research and development costs have been just over 1% of GDP. China is now Russia’s biggest trade partner, making up 39% of its imports in 2024. This means that Russia’s economy is becoming increasingly dependent on China. Russia gets a lot of its industry and consumer goods from China, but not all of them are of high quality.
Because of sanctions that make it hard to get spare parts, Russia’s civil aviation fleet is slowly shrinking and getting worse.
Russia’s cars are also getting old. Customers have to pick between old Ladas made in Russia, Chinese cars that don’t work well on Russia’s roads and temperature and used cars from other countries that aren’t sure how good they are. 69% of all cars bought in Moscow in 2024 were Chinese, totaling 139,000. Only 13,000 Ladas were bought that year.
Russia’s economy is getting worse as problems keep piling up. In time, these issues might push a Russian president to try to make things better with the West. But that time hasn’t come yet. The war might come to an end.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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