The dreadful choice

If Donald Trump wins the US presidential election in November, he has promised to end the conflict in Ukraine in a single day. Even if he had the tools to do so (he doesn’t), nothing in Donald Trump’s history with Vladimir Putin suggests that he will accomplish this goal by bringing unbearable pressure on the Russian Federation. The more likely object of Trump’s unbearable pressure will be Ukraine. By threatening to terminate altogether American financial and military support for Ukraine, Trump could attempt to force the Ukrainian authorities to make significant territorial concessions to Russia, in effect giving Russia the victory that it has been unable to achieve on the battlefield.

This will leave Ukraine’s European allies facing an odious decision. They may either acquiesce in a resolution of this conflict that allows the aggressor to swallow huge chunks of its victim’s territory or face the prospect of continuing to finance Ukraine’s resistance on their own, without American help. The former will blow a chill wind over European countries that have significant Russian speaking populations and countries that previously belonged to the Soviet bloc. The latter option is in all likelihood both financially and politically unrealistic for European countries, many of which are already sporting debt-to-GDP levels well north of 100%. For purposes of this essay, we shall call this prospect the Europeans’ ‘Dreadful Choice.’

This is not a prophecy. Donald Trump may not win the US election. And, if he does, his promise to end the Ukraine war in a single day may end up on the steaming heap of Trumpian hyperbole. There is nothing inevitable in this scenario – except the calendar. Only eleven weeks will elapse between the US elections (November 5) and the presidential inauguration date (January 20, 2025) – not enough time in which to take measures to avert the Dreadful Choice if that ends up being what the Europeans face.

An insurance policy

The only way to ensure that Europeans may not need to face the Dreadful Choice would be to sequester, before January 20, 2025, funds sufficient to support Ukraine’s budgetary and military needs for the foreseeable future and to place those funds in a committed trust account beyond the reach of backsliding politicians.

And the only plausible source of adequate funds that could be mobilised over the next six months is the roughly $320bn of Russian Federation and Russian Central Bank assets that were frozen following Russia’s invasion of Ukraine in February, 2022. The US President has already been given the legal authority to seize the frozen Russian assets located in the United States but this is a relatively small amount ($5-6bn ). Equivalent legislative authority would be required in the other countries holding frozen assets such as Belgium (where about two-thirds of the assets are held), the United Kingdom, Germany, France, Australia and Japan.

Rationale

Although views about the legal basis for a seizure of the frozen assets differ widely, most people seem to agree on one thing – Russia is under an indubitable legal obligation to pay reparations for the damage it has caused in Ukraine. The United Nations General Assembly has confirmed this. The G7 countries have twice reaffirmed their commitment not to release the frozen assets unless and until Russia pays reparations.

Short of a regime change in Moscow that produces a new administration determined to mend fences, the prospects for Russia voluntarily paying for the damage it has inflicted on Ukraine are vanishingly small. The obvious justification for seizing the frozen assets and contributing them to an internationally administered trust account for the benefit of Ukraine is therefore to view this as a down payment toward Russia’s obligation to pay reparations. Were Ukraine to give a binding undertaking that it would treat all disbursements from the trust account as reducing – dollar for dollar – Russia’s obligation to pay reparations, Russia would thus receive full value for its frozen assets. To be sure, this partial settlement of Russia’s legal obligation would be involuntary on Russia’s part. But anyone who has ever seen their paycheck debited to reflect the withholding of income taxes will understand the concept of an involuntary payment of a legal obligation.

Reservations

In the two and a half years since the invasion of Ukraine and the freezing of Russia’s external assets a number of commentators have expressed reservations about taking the next step of actually seizing the frozen Russian assets. These reservations range from the financial (would such an action chill the willingness of other states to hold their international monetary reserves in Europe?) to the legal (what is the basis under international law for confiscating a foreign state’s assets when the confiscating authority is not itself at war with the owner of those assets?) We do not propose to inventory these reservations or the responses to them from those advocating outright seizure of the assets. Suffice it to say that no consensus has emerged on these issues over the last 30 months and none is likely to do so in the next 30 months.

Our point here relates only to the implacable nature of Time’s winged chariot. The only reason that the international community has had the luxury of a leisurely academic debate on these issues is that Ukraine’s needs for both budgetary support and military defence have been covered by financing extended by Europe and the US. It was not until the US Congress experienced a bout of political arthritis last year that the potential real-world consequences of a failure to liberate the frozen assets and make the proceeds available to Ukraine became apparent.

That luxury of academic debate has run out. If the countries holding the frozen assets do not prepare their domestic legislative ground for a possible seizure of the assets over the next few months, a change in the political landscape in the US later this year may force Europe to confront the Dreadful Choice: accede to a peace settlement with portentous consequences for the security of Europe or continue funding Ukraine by themselves. Naturally, politics may not take this turn and Ukraine’s allies may continue to use their taxpayers’ money to support Ukraine in 2025 and beyond (if necessary), in which case the academic debate over the fate of the frozen assets can continue. Our point is only this – if political developments in a few months suggest that American taxpayer money may not be available to support Ukraine in 2025 and beyond, steps should be taken now to ensure that Russian taxpayer money (in the form of the frozen assets) will be made available for that purpose.

Recommendations

Concretely, we recommend that the period between now and the first week of November be used:

• To prepare a trust account at the World Bank or other international financial institution into which the proceeds of the frozen Russian assets could be moved and used for the benefit of Ukraine. The important point is that those funds, once in the trust account, cannot be diverted without a majority or super majority vote of the Executive Board of that organisation;
• To plough the parliamentary road in the jurisdictions in which the frozen assets are held in order, if necessary, to permit a rapid seizure of those funds and their transfer to the trust account at the end of this year;
• To work out a suitable arrangement for Belgium (as the single largest holder of frozen assets) to indemnify it for any legal or other exposure it may incur as a result of a seizure of the assets; and
• To accelerate the plans for an internationally recognised body charged with the task of assessing reparations claims by individuals, corporations and sovereigns injured by Russia’s invasion of Ukraine.

The immediate objective of these measures would be to disabuse Putin of the belief that the best chance for salvaging his special military operation rests in a change of administration in the US. If funding adequate to cover Ukraine’s needs for at least a couple of years were safely sequestered in a trust account that could not be unwound by a unilateral decision of a US President, Putin might see little advantage in delaying serious settlement discussions.

The secondary objective is to ensure that the Europeans cannot be placed in a situation six months from now where they must face the Dreadful Choice.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.