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Russia's monetary authority has declared it is claiming damages amounting to $230 billion from the securities depository Euroclear. This move represents a direct warning from the Kremlin regarding proposals to use frozen Russian state assets to support Ukraine.

The Substantial Demand

According to accounts in Russian state media, the monetary authority filed a claim last week for roughly 18 trillion roubles. This figure corresponds to the aforementioned $230 billion claim.

European Union officials will decide in the coming days regarding a plan to use approximately €210 billion in frozen Russian state funds. The proposal involves granting Ukraine with a substantial loan to fund its military and financial stability.

Most of these funds, amounting to €185 billion, are stored at the Euroclear depository in Brussels. Euroclear serves as the primary custodian for the Kremlin's frozen financial reserves.

A Clash Over Legality

European Union authorities have argued that their proposal is legally sound. They argue rests on the fact that title of the state assets remains with Russia, even though it was frozen in EU countries shortly after the 2022 military offensive of Ukraine.

The Russian government, however, has called any utilization of the funds as illegal appropriation. Authorities have threatened reciprocal measures, such as seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent position in peace negotiations, wrote on X that Russia "will win in court" and regain its assets. He added that the EU, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

With statements seen as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a severe assault on the right to ownership and the global financial system established by the United States."

The clearing house refused to comment on the new legal action. It has in the past stated it is facing more than 100 legal cases in Russian jurisdictions.

Legal Hurdles Ahead

While courts in European nations are not expected to enforce judgments from Russian tribunals, experts expect Moscow to seek implementation in countries with closer ties to the Kremlin.

"Russian monetary authorities could try to enforce a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other friendly nations, if relevant holdings can be identified," commented a legal expert from an international firm.

European Safeguards

EU officials indicated they are working on measures to deter other nations from assisting any Russian lawsuits against European entities. Additionally, they are designing safeguards to shield EU countries with assets in Russia from what they term "unlawful expropriation."

The Proposed Loan Mechanism

According to the complex scheme, the EU would issue an first €90 billion loan to Ukraine, using the cash earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the principal funds would stay untouched.

Kyiv would only be required to repay the loan in the event that Russia consented to pay compensation for the immense damage caused during the ongoing war.

Other Funding Ideas

Belgium, supported by Italy, Bulgaria, and Malta, has urged the EU to consider an different method for funding Ukraine. This entails common EU debt issuance to secure a loan, using unused funds within the European budget.

Such a proposal, however, demands unanimity among all 27 EU countries. Hungary's government, considered friendly with the Kremlin, has already signaled its objection.

Commenting on Monday, the EU foreign policy chief, a senior official, said the reparations loan as "the most credible solution" for supporting Ukraine. "The reparations loan is secured against the Russian frozen assets, meaning it is not drawn from our public funds, which is also important," she remarked. "Furthermore, it sends a powerful message that if you cause all this damage to another country, you must pay for the rebuilding."