Belgium’s Opposition Complicates G7 Plan for Ukraine Loan Backed by Frozen Russian Assets

Belgium's Opposition Complicates G7 Plan for Ukraine Loan Backed by Frozen Russian Assets

G7 nations are pushing a plan to use the profits from approximately €190 billion in frozen Russian central bank assets, held primarily at the Euroclear depository in Belgium, to back a multi-billion dollar loan for Ukraine. However, the Belgian government, led by Prime Minister Bart De Wever, has expressed strong reservations, citing significant legal, financial, and reputational risks, thereby threatening to block the initiative.

Context & What Changed

Following Russia’s full-scale invasion of Ukraine in 2022, G7 nations and their allies froze approximately €260 billion of Russian central bank assets (source: European Commission). The vast majority, around €190 billion, is immobilized at Euroclear, a Belgium-based central securities depository (CSD). These assets, primarily securities, continue to mature and generate substantial interest and redemption proceeds, often referred to as ‘windfall profits’. Initial discussions about outright confiscation of the principal were stalled by significant legal hurdles, primarily the principle of sovereign immunity under international law.

The recent change is a shift in strategy championed by the United States. Instead of seizing the principal, the G7 proposes to use the future stream of windfall profits (estimated at €3-5 billion annually) as collateral to secure a large, upfront loan for Ukraine, reportedly valued at around $50 billion (source: G7 official statements). This mechanism, known as securitization, would provide immediate and substantial financial support to Kyiv. The critical development is Belgium's public and staunch opposition to this plan. As the host jurisdiction for Euroclear, Belgium's consent is indispensable. Its government is concerned that it, and its critical financial infrastructure, would bear the brunt of Russian legal retaliation and the potential erosion of international confidence in the Eurozone as a safe haven for foreign reserves.

Stakeholders

Ukraine: The primary beneficiary. The proposed loan represents a vital lifeline for its war effort and battered economy, offering a more predictable and substantial funding source than piecemeal aid packages.

G7 Nations: The proponents of the plan, particularly the U.S., which sees it as a way to unlock significant funding for Ukraine without directly appropriating domestic taxpayer money. It is a test of the G7's collective resolve and financial creativity.

Belgium: The central actor and potential veto player. The Belgian government must balance its commitment to supporting Ukraine with its duty to protect its economy and the stability of Euroclear, a globally systemic financial institution. It also benefits directly by taxing the windfall profits, with a projected €1.7 billion in revenue for 2024 (source: Belgian government).

Euroclear: A private financial market utility caught in a geopolitical storm. It holds the assets and faces direct legal liability. Russia has already initiated over 100 lawsuits against Euroclear in Russian courts (source: Euroclear disclosures). The firm's operational integrity and reputation are at stake.

European Union & European Central Bank (ECB): The EU seeks a unified policy, but member states are divided on the level of risk. The ECB has repeatedly warned that such a move could damage the international standing of the Euro and deter foreign central banks from holding reserves in the currency (source: Financial Times, ECB statements).

Russian Federation: The target of the policy. Moscow has labeled any move to use its assets as "outright theft" and has vowed to retaliate, including by seizing Western assets still held in Russia and pursuing decades of legal challenges.

Global South & Non-Aligned Nations (e.g., China, Saudi Arabia): Key observers. These nations, which hold vast foreign currency reserves, are watching to see if the West will upend long-standing norms of sovereign immunity. A decision to proceed could accelerate their efforts to de-dollarize and find alternative reserve-holding arrangements.

Evidence & Data

Total Frozen Russian Sovereign Assets: Approximately €260 billion globally.

Assets Held at Euroclear (Belgium): Approximately €190 billion as of early 2024 (source: Euroclear, Belgian Finance Ministry).

Windfall Profits Generated: Euroclear reported €4.4 billion in net interest earnings related to the Russian assets in 2023 (source: Euroclear Annual Report 2023). Projections for future annual profits range from €3 billion to €5 billion, highly dependent on prevailing interest rates.

Proposed G7 Loan Amount: Approximately $50 billion (€46 billion).

Legal Precedent: The legal basis for using the profits rests on the concept of 'countermeasures' in international law, arguing that Russia's breach of international law (the invasion) permits affected states to take otherwise illegal actions. However, this is largely untested territory for sovereign assets on this scale.

Market Reaction: While no major market disruption has occurred yet, central bank surveys indicate a slow but steady diversification away from the US Dollar and Euro in global reserves over the past decade (source: imf.org, COFER data). This event could accelerate that trend.

Scenarios (3) with probabilities

Scenario 1: The Compromise Deal (Probability: 60%)

The G7, EU, and Belgium reach a negotiated agreement. The final plan is likely a modified version of the U.S. proposal. Key elements could include: G7 nations providing explicit, legally-binding indemnities to Euroclear against Russian lawsuits; using only a portion of the future profits to back a smaller loan; and establishing a special purpose vehicle (SPV) outside of Belgium to issue the debt. Belgium agrees in return for these robust protections and a continued role in managing the process. This is the most probable outcome as the political imperative to fund Ukraine is immense, but Belgium’s concerns are too legitimate to ignore.

Scenario 2: Stalemate & Incrementalism (Probability: 30%)

Belgium’s opposition holds firm, and the G7 cannot achieve the consensus needed for the ambitious loan plan. The plan is shelved. Instead, the EU continues with its existing, less aggressive plan: skimming the net profits generated each year and transferring them to Ukraine in biannual tranches. This provides less funding upfront (~€3B/year vs. ~$50B loan) and highlights Western disunity. This scenario becomes more likely if legal reviews find insurmountable obstacles or if financial markets show signs of instability.

Scenario 3: Political Override (Probability: 10%)

Intense political pressure from the U.S. and other G7 members forces Belgium to acquiesce to the original plan without its core demands for indemnification being fully met. This high-risk scenario would achieve the short-term goal of funding Ukraine but would expose Belgium and Euroclear to massive future liabilities. It could trigger significant Russian retaliation and unnerve global reserve managers, potentially causing capital flight from the Eurozone. This is the least likely scenario due to the EU’s institutional respect for member state sovereignty on critical national interest issues.

Timelines

Short-Term (0-3 Months): Decision point at the upcoming G7 summit. Negotiations will be at their most intense. A political agreement in principle, or a public stalemate, is expected.

Medium-Term (3-12 Months): If an agreement is reached (Scenario 1), this period will be dedicated to constructing the complex legal and financial architecture for the loan facility. Russia will likely escalate its legal challenges in multiple jurisdictions. The first loan disbursements could potentially reach Ukraine by early next year.

Long-Term (1-10 Years): The loan is disbursed over several years. The true impact on the Euro's reserve status and the precedent for sovereign immunity will become apparent. Protracted legal battles between Russia, Euroclear, and Western states will play out in international courts and arbitration panels.

Quantified Ranges

Value of Immobilized Assets at Euroclear: €180 billion – €200 billion.

Annual Profits from Assets: €3 billion – €5 billion (contingent on interest rates).

Potential Loan Principal: $40 billion – $60 billion.

Potential Legal Liability for Euroclear/Belgium: Highly uncertain, but could theoretically range from billions in damages to the full principal value of €190 billion in a worst-case legal judgment.

Risks & Mitigations

Risk: Legal Retaliation. Russia launches a multi-front legal war against Euroclear and Belgium, potentially winning judgments in friendly jurisdictions.

Mitigation: The G7 must provide a watertight, joint and several indemnity to cover all legal costs and awarded damages. The legal framework for the loan must be meticulously crafted to stand up to scrutiny under international law.

Risk: Financial Market Instability. Central banks from non-G7 countries reduce their Euro-denominated reserves, perceiving 'country risk' even in the Eurozone's core.

Mitigation: Coordinated and clear communication from the G7 and ECB, framing the action as an exceptional, one-off countermeasure to an unprecedented breach of the UN Charter, not a new policy tool. Emphasize that the principal remains untouched.

Risk: Symmetrical Retaliation. Russia seizes the remaining assets of Western companies operating in Russia.

Mitigation: Most exposed companies have already taken significant write-downs. This risk is largely priced in. G7 governments can provide diplomatic support and explore avenues for future compensation claims against Russia.

Risk: Operational Complexity. The loan structure proves too complex to implement quickly, delaying vital funds to Ukraine.

Mitigation: Appoint a reputable international financial institution (e.g., World Bank, EBRD) to manage the loan facility, leveraging existing expertise in structuring and disbursing large-scale development and reconstruction finance.

Sector/Region Impacts

Public Finance: This would create a powerful new precedent for funding responses to international crises using aggressors' own immobilized assets. It could become a template for future sanctions regimes.

Financial Infrastructure: Systemically important institutions like CSDs will see their risk profiles permanently elevated, requiring them to integrate geopolitical risk management at a much deeper level. This may increase compliance costs across the sector.

International Law: The move would significantly test and potentially alter the long-held doctrine of sovereign immunity, with consequences that will be debated for decades.

Europe: A successful plan would be a major victory for European geopolitical influence. A failure or damaging fallout would expose internal divisions and potentially weaken the international role of the Euro, a key strategic objective for the EU.

Recommendations & Outlook

For Governments (G7/EU/Belgium): The priority must be a unified front built on a legally robust framework. The G7 must move beyond political assurances and offer Belgium and Euroclear a legally binding financial backstop. Failure to do so will likely lead to the less effective 'Stalemate & Incrementalism' scenario. (scenario-based assumption: A G7 indemnity is the single most critical factor to unlock the 'Compromise Deal' scenario).

For Financial Institutions & Regulators: The weaponization of financial infrastructure is no longer a theoretical risk. Boards and regulators must urgently stress-test their institutions against extreme geopolitical scenarios, including the immobilization of assets and exposure to complex international legal disputes.

For Large-Cap Industry Actors: The principle that assets held in stable, rule-of-law jurisdictions are entirely safe from political action is being tested. A re-evaluation of sovereign risk is necessary, particularly for firms with significant assets held abroad. (scenario-based assumption: The 'Political Override' scenario, though unlikely, would trigger a significant global reassessment of jurisdictional risk).

Outlook: The path of least resistance leads to a stalemate, but the political pressure to act is enormous. Therefore, a complex compromise (Scenario 1) remains the most probable outcome. This event marks a watershed moment in the intersection of international finance, law, and geopolitics. The decision made in the coming months will not only shape the financing of the war in Ukraine but will also set a profound precedent for the global financial order for years to come. The era of finance being insulated from geopolitics is definitively over.