Belgium’s Reservations Complicate G7 Plan for Ukraine Loan Backed by Frozen Russian Assets

Belgium’s Reservations Complicate G7 Plan for Ukraine Loan Backed by Frozen Russian Assets

The Group of Seven's (G7) proposal to provide a $50 billion loan to Ukraine, collateralized by future profits from frozen Russian sovereign assets, is facing significant legal and financial hurdles. Key European nations, particularly Belgium, have expressed reservations. As the host of Euroclear, the depository holding the vast majority of the approximately €260 billion in frozen assets, Belgium's cooperation is critical for the plan's implementation.

Context & What Changed

Following Russia's full-scale invasion of Ukraine in February 2022, G7 nations and their allies took the unprecedented step of immobilizing approximately €260 billion of Russian Central Bank assets held in their jurisdictions (source: European Commission). The vast majority of these assets, estimated at €191 billion, are held at Euroclear, a Belgium-based international central securities depository (ICSD) (source: Belgian Finance Ministry). Initially, the policy was one of simple immobilization, preventing Russia from accessing the funds but not altering their ownership, in adherence with the international legal principle of sovereign immunity. The assets, primarily securities, continued to mature and generate interest and redemption proceeds.

The significant change is a G7 proposal, championed by the United States, to move beyond simply immobilizing the assets. The new plan seeks to leverage the future revenue stream generated by these assets—estimated at €3-5 billion annually—to secure a large, upfront loan of approximately $50 billion for Ukraine. This represents a material escalation from the prior European Union consensus, which focused only on capturing the "windfall profits" already accrued. This shift from using past earnings to collateralizing future, unrealized earnings raises profound legal, financial, and geopolitical questions. Belgium's position is pivotal; as the legal jurisdiction for Euroclear, its government faces direct exposure to legal challenges and financial stability risks, making its consent and cooperation the central challenge for the G7's plan.

Stakeholders

G7 Nations: The primary proponents of the plan, seeking to provide substantial, long-term funding for Ukraine without directly impacting their national budgets. There are internal divisions: the US and UK advocate for more aggressive action, while continental European members like France, Germany, and Italy, along with the EU institutions, urge caution due to greater legal and financial exposure.

Ukraine: The intended beneficiary. The $50 billion loan would provide a critical lifeline for its defense efforts, government functions, and eventual reconstruction amid a protracted conflict.

Belgium: The linchpin of the entire structure. The Belgian government must balance its G7 commitments with its legal obligations to protect Euroclear, a critical piece of global financial infrastructure. It is concerned about legal liability, the precedent being set, and potential Russian retaliation.

Euroclear: The ICSD holding the assets. As a private entity with a systemic public function, its primary objective is to mitigate legal and operational risk. It faces dozens of lawsuits in Russia and elsewhere and requires absolute legal certainty and likely sovereign indemnity to participate in any such scheme.

European Union & European Central Bank (ECB): The EU provides the overarching legal framework for sanctions, which would need to be amended. The ECB has repeatedly warned that aggressive moves against Russian assets could undermine the international role of the Euro and create financial stability risks, potentially prompting other nations to repatriate reserves held in the currency.

Russian Federation: The legal owner of the assets. Moscow has labeled any plan to use its assets or their profits as "theft" and has threatened significant legal challenges and economic retaliation, including the seizure of Western assets still held in Russia.

Non-G7 Reserve-Holding Nations: Countries such as China, Saudi Arabia, and other major sovereign wealth funds are observing these developments closely. Any perceived erosion of the principle of sovereign immunity could accelerate their long-term strategies to diversify reserves away from the US Dollar and the Euro, impacting global capital flows.

Evidence & Data

Total Frozen Assets: Approximately €260 billion in Russian sovereign assets are immobilized in G7+ jurisdictions (source: G7 Finance Ministers' statements). An estimated $300 billion is the commonly cited figure when including all currencies.

Assets at Euroclear: The Belgian government has confirmed that around €191 billion of the assets are held at Euroclear (source: Belgian government press releases).

Profits Generated: In 2023, Euroclear reported that the immobilized Russian assets generated approximately €4.4 billion in interest (source: Euroclear Annual Report 2023). Future profits are variable and depend on global interest rates.

Proposed Loan: The G7 is discussing a loan principal of approximately $50 billion (€46 billion). This would require leveraging the anticipated profits for a period of 10-15 years, depending on interest rate assumptions.

Legal Framework: Current EU sanctions regulations (e.g., Council Regulation (EU) 2024/1469) allow for the separation and retention of windfall profits generated by the assets. However, they do not provide a clear legal basis for seizing the assets themselves or collateralizing future, unearned profits, which Russia's lawyers argue would constitute a de facto seizure.

Belgian Precedent: Belgium has already instituted a 25% corporate tax on the profits Euroclear generates from the Russian assets. The revenue from this tax, estimated at over €1 billion annually, is being directed to a dedicated fund for Ukraine (source: Government of Belgium). The G7 plan would need to be structured around or in place of this existing national mechanism.

Scenarios (3) with probabilities

Scenario 1: "Compromise Model" – Annual Transfer of Accrued Profits (Probability: 65%)

In this scenario, the G7 abandons the complex loan-collateralization structure due to legal objections from Belgium and the ECB. Instead, they formalize a simpler, legally safer mechanism to transfer the net profits as they accrue to a fund for Ukraine on a recurring basis (e.g., semi-annually). This aligns with the existing EU legal framework, minimizes the risk of successful legal challenges, and provides Ukraine with a predictable, albeit smaller, annual funding stream of €3-5 billion. This path represents the lowest legal and financial stability risk.

Scenario 2: "Leveraged Loan Agreement" – G7 Sovereign Guarantees (Probability: 25%)

A complex agreement is reached to implement the $50 billion loan. To overcome Belgian and Euroclear’s reservations, the G7 member states provide a joint and several, legally binding indemnity to both the Belgian state and Euroclear, shielding them from all legal costs, judgments, and retaliatory financial measures. The loan would be structured as bilateral contributions from G7 nations to a special purpose vehicle, which would then be serviced by the future asset profits. This achieves the political goal of a large upfront sum but requires significant political capital to agree on the guarantee structure and could still face years of litigation.

Scenario 3: "Stalemate and Fragmentation" – No G7 Consensus (Probability: 10%)

Legal and political disagreements prove insurmountable. Belgium, backed by Germany, Italy, and the ECB, formally rejects the loan proposal as legally unsound and financially risky. The G7 fails to reach a consensus at its upcoming summit. The result is a continuation of the status quo: assets remain frozen, and Belgium continues its national taxation of profits for Ukraine’s benefit. This would be perceived as a political failure for the G7 and would leave Ukraine’s long-term funding less certain.

Timelines

Short-Term (1-3 Months): The upcoming G7 leaders' summit is the critical decision point. Intense technical and political negotiations will focus on finding a legally viable compromise that all members, especially Belgium, can support.

Medium-Term (3-12 Months): If an agreement is reached (Scenarios 1 or 2), the subsequent period will be dedicated to drafting and passing the necessary EU-level regulations and national implementing legislation. This process is complex and requires legal precision to withstand expected court challenges.

Long-Term (1-10 Years): Implementation of the chosen funding mechanism will begin. Regardless of the model chosen, legal challenges from the Russian Federation in various international and national courts are a certainty and will likely persist for the duration of the asset immobilization. The risk of Russian retaliation against Western interests will remain elevated throughout this period.

Quantified Ranges

Annual Profits from Assets: €3 billion – €5 billion. This range is highly sensitive to the European Central Bank's main refinancing rate and other global interest rates.

Potential Russian Retaliation Value: Western companies have disclosed assets and operations in Russia valued at over $100 billion prior to significant write-downs (source: Reuters analysis of corporate filings). A significant portion of these assets could be targeted for seizure or forced sale.

Legal Liability Exposure: Potential claims from Russia could equal the full principal of the immobilized assets (€260 billion) plus damages, creating a massive contingent liability that Belgium and Euroclear are unwilling to bear without sovereign guarantees.

Risks & Mitigations

Legal Risk: The plan is challenged as a violation of customary international law on sovereign immunity, leading to successful court injunctions or damage awards.

Mitigation: Base the mechanism strictly on the use of profits, not principal, and frame it as a legitimate countermeasure under international law. Secure robust, multi-jurisdictional legal opinions and, critically, provide a full G7 sovereign indemnity to Euroclear and Belgium.

Financial Stability Risk: The move triggers a loss of confidence in the Euro as a reserve currency, prompting central banks of non-aligned nations to sell Euro-denominated assets.

Mitigation: The G7 and ECB must engage in coordinated, clear communication emphasizing the exceptional, sui generis nature of the action, directly linked to Russia's violation of the UN Charter. Diplomatic outreach to key reserve-holding nations (e.g., in the GCC, Southeast Asia) is essential to manage perceptions.

Retaliation Risk: Russia initiates tit-for-tat seizures of assets belonging to companies from "unfriendly countries."

Mitigation: G7 governments must acknowledge this risk and prepare contingency plans, which could include a compensation fund for affected companies, potentially funded by a portion of the Russian asset profits. Companies with remaining exposure should be strongly advised to divest.

Operational Risk: Euroclear becomes a primary target for sophisticated Russian state-sponsored cyberattacks aiming to disrupt its operations and the wider financial system.

Mitigation: National and international cybersecurity agencies (e.g., NATO's CCDCOE) must provide enhanced intelligence and defensive support to Euroclear. The institution must continuously upgrade its operational resilience and recovery protocols.

Sector/Region Impacts

Financial Sector: Euroclear is at the epicenter of the risk. The broader banking and asset management sectors will face heightened compliance burdens and must reassess counterparty risk. The precedent could impact the perceived neutrality of other financial market infrastructures like Clearstream.

Legal Sector: A significant increase in complex, high-value litigation concerning international law, sovereign immunity, and sanctions is expected, creating years of work for specialized law firms and arbitration bodies.

Energy & Industrials: Any large-cap company with physical or financial assets remaining in Russia faces a near-certain risk of expropriation or forced nationalization under Scenarios 1 and 2.

Europe: As the geographic and legal host of the majority of assets, the EU and its member states, particularly Belgium, bear the brunt of the direct legal and financial stability risks. The decision will be a major test of the EU's internal cohesion and its ability to act as a unified geopolitical power.

Recommendations & Outlook

For Governments (G7, EU, Belgium): Prioritize legal robustness and unity over speed and the size of the headline figure. The "Compromise Model" (Scenario 1) offers the most prudent path forward, balancing meaningful support for Ukraine with the imperative to mitigate systemic financial and legal risks. If the more ambitious loan (Scenario 2) is pursued, a comprehensive, legally ironclad, and fully funded G7 sovereign indemnity for Belgium and Euroclear is an absolute prerequisite. Proactive diplomatic engagement with non-G7 partners is essential to contain the geopolitical fallout.

For Financial Market Infrastructure (Euroclear, etc.): Maintain a position of strict neutrality and risk aversion. Do not proceed with any plan, however politically expedient, without unambiguous and complete legal and financial protection from G7 sovereigns. Continue to invest heavily in operational and cyber resilience.

For Large-Cap Industrials: The window for orderly exit from Russia is effectively closed. Boards must now operate under the assumption that any remaining assets are at extreme risk of seizure. Risk committees should quantify this exposure and prepare financial statements and investor communications accordingly. Contingency planning for supply chain disruptions resulting from retaliatory measures is also advised.

Outlook: (Scenario-based assumption) We assess that the G7 will ultimately converge on a solution closer to Scenario 1. The legal and financial stability concerns voiced by key European actors are too significant to ignore. The final agreement will likely be framed as a major political achievement, establishing a sustainable, multi-year funding stream for Ukraine from the profits of Russian assets, while avoiding the legal quagmire of the loan collateralization model. (Scenario-based assumption) Regardless of the specific outcome, this episode will permanently alter the landscape of sovereign immunity and will be seen by future historians as a key inflection point in the weaponization of finance, accelerating the gradual fragmentation of the global financial system as non-Western powers seek alternatives to the Euro and Dollar-centric order.