27. Februar 2024

nEUrds Newsletter – Your Guide To What’s Moving The Bubble: 4th Edition

Written By Lukas Seelig, Janik Gast and Moritz Pohl


coming to you from Polis180’s “European Economic Policy” programme inviting you to subscribe for free by dropping us a line here!


Hello there and welcome back, curious minds and all-around Brussels enthusiasts!


Welcome back to the latest edition of our nEUrds newsletter, where we once again dive into the riveting world of European economic policy with a twist of wit and a dash of insight. 

In this week’s edition, we’ve rolled up our sleeves to dissect the European Council’s recent chess move on Russian assets — a decision that’s sent ripples across the policy pond. Now, a quick heads-up: our lead piece this week might just set a new record for us in terms of length. But trust us, it’s a sprawling saga worth every line, unpacking the Council’s daring play to use frozen assets for Ukraine’s reconstruction — a strategy as bold as it is complex.

So, while we usually pride ourselves on brevity, this time we invite you to join us for a deep dive into a topic that’s as layered as it is significant, offering a comprehensive analysis of a pivotal moment in EU economic diplomacy.

But that’s not all we’ve got our analytical lenses focused on. We’re also bringing you a crisp review of key macroeconomic discussions that echoed through the halls of European policymaking, from the bloc’s most recent stance on competitiveness to the latest on the EU’s economic forecast. 

This week, we’ve got a special treat: an exclusive statement from Anna Cavazzini, Chair of the IMCO Committee. Join us as we explore the future she envisions for European policy, and buckle up for an enlightening journey through the corridors of power, wit, and wisdom!

And because we always like to keep one eye on the horizon, we’re spotlighting the crucial events and discussions slated for this week. From comprehensive economic forecasts to strategic policy maneuvers and important council meetings, strap in for a ride through the dynamic landscape of European economic policy!


Frozen Funds, Thawing Norms: The EU’s Historic Move on Russian Assets

written by Lukas Seelig

In an audacious stride that highlights the EU’s unwavering support for Ukraine amidst its ongoing strife, on Monday (12 February), member countries rallied behind a pioneering plan to allocate billions of euros from the profits generated by the freezing of assets of Russia’s central bank (CBR). Amplifying the momentum, Estonian Prime Minister Kaja Kallas, in a sideline conversation with the Financial Times at the Munich Security Conference, voiced a compelling call for the West to act swiftly on Russia’s immobilized assets, preferably before the U.S. election bell tolls. This decisive action, formalized by the Council at the beginning of last week, represents a significant step in leveraging economic sanctions for Ukraine’s reconstruction efforts.


Clarifying the Path Forward

The Council’s adoption of a decision and a regulation brings clarity to the obligations of Central Securities Depositories (CSDs), such as Euroclear, which holds approximately €191 billion of Moscow’s assets, that are immobilized as a consequence of EU’s restrictive measures concerning Russia. Notably, these institutions will now face prohibitions on utilizing net profits from these assets, which are estimated to exceed €4 billion. The mandate requires that these extraordinary cash balances, accumulated due to EU’s restrictive measures, be accounted for separately safeguarding corresponding revenues until a unanimous decision by EU member states paves the way for their utilization towards rebuilding Ukraine. Importantly, this proposal is forward-looking, targeting future profits without retrospective application, and is applicable to institutions managing over €1 million of CBR assets. Estimates suggest that this approach could yield €15-17 billion over four years, earmarked for transfer to Ukraine.


A Look Back at the EU’s Response

The journey to this pivotal moment began in February 2022, following Russia’s full-scale invasion of Ukraine. As part of a broader coordinated international response, the EU moved to immobilize the assets and reserves of the CBR, effectively freezing approximately €260 billion in assets across G7 partners, the EU, and Australia. This action, representing a significant portion of Russia’s financial reserves within the EU, served as a testament to the international community’s resolve in the face of aggression.


Why Act Now?

The significance of this decision cannot be overstated, arriving nearly two years into Russia’s aggression against Ukraine. With the cost of Ukraine’s reconstruction now estimated at a staggering $486 billion (€452.8 billion) over the next decade, the need for substantial financial support has never been more acute.


This initiative aligns with the G7’s call for directing revenues from Russia’s immobilized assets towards Ukraine’s recovery and the Council’s reiteration of this objective, consistent with applicable contractual obligations, and in accordance with EU and international law.


The decision also arrives amid growing international discourse advocating for the legality and urgency of utilizing Russia’s frozen assets for Ukraine’s reconstruction. Echoing the principle of erga omnes, both experts and EU member states, such as Estonia, argue for the legal grounding of seizing Russia’s frozen assets and urged the EU to act swiftly in confiscating over €150 billion in frozen Russian assets before the year’s end.


Envisioning the Future

The Council’s move not only solidifies the EU’s stance on utilizing (the implications of) economic sanctions as a tool for justice and support but also opens the door to a potential financial contribution to the EU budget from these net profits.


Navigating International Waters

And in this swirling sea of global diplomacy, Belgium – currently at the helm of the Council’s rotating presidency – has charted a middle path through the choppy waters of international disagreement. While the U.S., supported by the UK, Japan, and Canada, has been all for grabbing the assets of Russia lock, stock, and barrel, heavyweight EU players like Germany, France, and Italy have pumped the brakes, pointing to the shield of sovereign immunity.


Enter Belgium’s brainwave, a plan as clever as it is cautious: the G7 nations banding together to create what’s essentially a financial Trojan horse – a special purpose vehicle designed to raise funds by issuing debt against Russia itself, with the frozen fortunes as the guarantee. Here’s the kicker: if Russia decides to skip the bill, those assets get nabbed. It’s a bold strategy that navigates the tightrope between action and legal sanctity, potentially transforming frozen assets into a powerful lever for Ukraine’s recovery.


The Special Purpose Vehicle Explained

The essence of this compromise lies in its creativity and feasibility. Under normal conditions, collateral must be under the borrower’s control. However, the proposal ingeniously circumvents this by potentially placing Russian assets in an escrow-type account managed by a neutral third party until the conflict’s resolution. This mechanism cleverly maintains the technical ownership of the assets by Russia, providing Western governments with a diplomatic shield against claims of asset seizure.


Belgium’s proposal isn’t just smart – it’s supposed to be a stroke of financial wizardry. Let’s break it down: typically, for collateral to be collateral, it’s got to be something the borrower can actually wave around, like keys to a car or a deed to a house. But here’s where – according to the folks over at AxiosBelgium’s proposal flips the script. They suggest tucking Russian assets away in what’s known as an escrow account – think of it as a financial babysitter. This neutral third party keeps the assets safe and sound, only releasing them when certain agreed-upon conditions are met, like, say, the end of the illegal invasion.


Laying aside for a moment the fact that moving Russian assets into such an account might require legislative action by individual countries, we encounter a complex hurdle. This challenge stems from the need for broader European consensus. Nonetheless, this arrangement could enable Ukraine to raise funds, e.g. through the issuance of zero-coupon bonds, which offer a long-term maturity without periodic interest payments, aka not your grandma’s savings bonds: They’re more like a financial time capsule. Instead of doling out interest payments, these bonds are sold at a bargain price and only pay out when they mature (imagine buying a bond for $60 today that’ll be worth $100 in 30 or 40 years). It’s a win-win: Ukraine gets the cash infusion it desperately needs, and investors eventually get a tidy payout.


This nifty setup does more than just funnel funds to Ukraine. It keeps the assets technically under Russian ownership, letting Western powers sidestep accusations of asset theft with a „we’re just holding these for a friend“ kind of vibe. It’s a diplomatic maneuver as deft as it is financially savvy, ensuring the assets can be leveraged to aid Ukraine without crossing legal lines.


Realistic Versus Unrealistic Options

While the ideas of Russia withdrawing and offering reparations or an International Court of Justice ruling for reparations might seem appealing, they aren’t immediately feasible. On the other hand, Belgium’s strategy shines with its readiness for action, much like the Brady bonds did for debt crises in the 1980s (shoutout to Emily Peck and Matt Phillips for drawing our attention to this!). Brady bonds, essentially, were a clever fix where troubled countries restructured their debt by issuing new bonds, backed by U.S. Treasury bonds, ensuring safer investments and helping stabilize economies. Belgium’s plan echoes this pragmatic approach, offering a real-world solution amidst today’s complex geopolitical tensions.


Euroclear Sounds the Alarm on Frozen Assets Plan

However, in the intricate world of European finance, where the movement, security, and legality of investments are paramount, not everyone’s on board with the latest financial strategy brewing in the EU. Enter Lieve Mostrey, the chief maestro at Brussels‘ central securities depository, Euroclear. The company is currently the custodian of about €191 billion of the CBR’s wealth, a significant chunk of the €260 billion in sovereign assets frozen abroad following Ukraine’s invasion.


Mostrey has been raising a red flag over the ambitious plan to mobilize Russia’s frozen assets as a financial lifeline for Ukraine. Her concern? This approach skirts dangerously close to what she describes as an „indirect seizing“ of assets, potentially triggering a financial tremor across Europe and inviting a storm of legal challenges. With Euroclear entangled in a web of 50 to 100 lawsuits in Russian courts over the immobilized assets, the stakes couldn’t be higher.


Mostrey’s warning is stark: leveraging assets that aren’t yours as collateral might just mirror the effects of directly seizing them. „This could fundamentally shake the trust in Euroclear, European capital markets, and even the euro itself,“ she cautions, underlining the delicate balance of trust that underpins global finance.


Yet, there’s a silver lining Mostrey sees as less fraught with peril. She’s leaning towards the EU’s proposal to harness the profits from these frozen assets to bolster Ukraine’s recovery. Why the green light? In Euroclear’s world, interest income doesn’t flow back to clients; instead, it „legally belongs to Euroclear.“ In 2023 alone, the company raked in €4.4 billion by reinvesting cash from matured securities – a figure that could mirror in 2024 given the ongoing immobilization of Russian assets. This financial maneuver could, in a decade, yield profits up to an astounding $500 billion, painting a lucrative, if controversial, picture of asset management in times of geopolitical strife.


Amidst this financial chess game, concerns from the European Central Bank (ECB) add another layer of complexity to the mix. The ECB, peering through the lens of legal and economic precedent, is sounding the alarm over the potential fallout of such an audacious move on the euro. The crux of their worry? A domino effect where investors, spooked by the specter of their assets being next on the seizure list, might start a withdrawal from euro assets en masse. This fear isn’t plucked from thin air – Russia has already thrown down the gauntlet, hinting at retaliatory measures should their assets, estimated at a staggering $288 billion, be commandeered by the U.S. and EU. It’s a high-stakes scenario that could see the trust in the euro, and by extension, Europe’s financial stability, tested as never before.


As we stand at the crossroads of unprecedented financial strategy and geopolitical tension, the potential actions by the EU and the U.S. could mark a historical pivot in how the international community handles assets once deemed as too important or valuable to be interfered with. The unfolding scenario prompts a reflection on the lengths to which nations might go when traditional economic avenues narrow, hinting at a future where financial norms are redefined in response to pressing global challenges. This evolving landscape promises to reshape not just the mechanics of asset management and sanctions, but also the very fabric of international economic relations and trust in global currencies.


Revving Up Europe’s Competitive Engine: Insights from the Latest Reports (LS)

On a crisp Wednesday (February 14), the halls of the European Commission buzzed with the release of the „Annual Single Market and Competitiveness Report,“ in which the European Commission provides a critical assessment of Europe’s economic landscape, aligning with the EU’s strategic vision outlined in 2023.


Ahead of the pivotal March 2024 summit for reviewing progress on boosting the Union’s competitiveness, the report evaluates the state of the Single Market against nine key drivers, including innovation, digitalization, and trade.


Highlighting a mixed bag of results – nine KPIs showing improvement, five declining, and a few stable or awaiting data – it underscores the vital role of public and private investments in shaping Europe’s economic future.


The report anticipates contributions from Mario Draghi and Enrico Letta on enhancing European competitiveness, accompanied by detailed analyses in staff documents and a scoreboard tracking the integration of the Single Market and policy achievements in growth, jobs, and the green-digital transition. This comprehensive overview not only reflects on the current status but also charts a course for the EU’s ambitious economic goals, reinforcing the importance of strategic procurement and the removal of Single Market barriers to foster a resilient, competitive and innovative European economy.


Chilly Outlook: EU’s Winter 2024 Economic Forecast Unveiled (LS)

As the frost of February settled in, the European Commission unfurled its Winter 2024 Economic Forecast, revealing a somewhat icier economic landscape than previously anticipated. The forecast, grounded in technical assumptions up to 29 January 2024, sketches a picture of the EU economy treading into the year with more caution than confidence.


Growth rates have been adjusted to a more modest 0.5% for 2023, a slight dip from the 0.6% envisioned last autumn, with projections for 2024 also cooling down to 0.9% for the EU and 0.8% for the euro area, from the more optimistic 1.3% and 1.2% respectively. Yet, hope springs eternal for 2025, with economic activity expected to bloom again to 1.7% in the EU and 1.5% in the euro area.


In the realm of inflation, the forecast brings a glimmer of relief, predicting a gradual thaw. The EU’s Harmonised Index of Consumer Prices (HICP) inflation is set to descend from the steep 6.3% in 2023 to a more manageable 3.0% in 2024, and further to 2.5% in 2025. The euro area mirrors this trend, expecting inflation to ease from 5.4% in 2023 to 2.7% in 2024, and to 2.2% by 2025. This cooling pattern offers a silver lining, hinting at a gradual stabilization in the economic climate, yet the forecast underscores the need for cautious navigation through Europe’s frosty economic waters ahead.


Voices from the Vanguard: Insights from EU Policy Leaders (LS, JG, MP)

In this latest edition, we’re thrilled to introduce a new segment that promises to become a staple in our future issues. Join us as we engage directly with the movers and shakers of European policy-making, starting with a candid chat with Anna Cavazzini (MEP for the Greens since 2019 and esteemed Chair of the IMCO Committee). Discover what’s on her agenda for the coming weeks and months, offering our readers an insider’s perspective on the priorities shaping Europe’s future:


The Probe (nEUrds- Team):

“As you aim to lead the Internal Market and Consumer Protection Committee again, and against the background of your legislative work on the Forced Labor Regulation and the European Supply Chain Act: Which key initiatives do you aim to achieve before the upcoming European elections, and which initiatives do you plan to incorporate into your campaign for another potential term in the European Parliament?”


The Perspective (Anna Cavazzini):

“This term as Chair of the Committee on the Internal Market and Consumer Protection in the European Parliament, I am working hard to turn the single market into a tool that helps in fighting the climate crisis and our massive waste of resources. By introducing legislation on sustainable products we are pushing the transition towards a fully circular economy. With mandatory sustainability requirements for nearly all products and rules that enable consumers to take part in the green transition by, for example, fighting greenwashing, we already achieved much. The rest of this term, I will work hard to successfully close work in progress files under the EU Green Deal, such as the right to repair and the mentioned trade related files on due diligence and forced labor. For next term, I want to continue the work on files that we will not conclude, such as on the large customs reform package or on substantiating green claims. We will all need to work hard to implement these successes for the climate and consumers the most efficient way. I personally will fight for making the choice of consumers automatically the most sustainable one – from your T-shirt to your fridge. Therefore, we need an update of consumer protection rules to make them fight for digitization. The climate crisis demands more than ever urgent action.”


Crystal Ball Gazing (LS, MP)

What we are following throughout the week


General Affairs Council (February 20): Under Belgian Minister Hadja Lahbib’s leadership, ministers will lay the groundwork for the March European Council, tackling Russia’s war, European defense industry fortification, the 2024 European Semester, and endorsing economic policy recommendations for the euro area. Poland’s rule of law situation under the Article 7(1) TEU microscope promises intense discussions. You can find the background briefing here and the meeting page here.


Legislative Votes and Debates (February 22-24): A flurry of committee votes on crucial legislative proposals, including product liability, the right to repair, and the Single Market emergency instrument, alongside debates on the Single Market’s future led by former Italian Prime Minister and President of the Jacques Delors Institute Enrico Letta. The week also sees pivotal votes on the EU’s long-term budget, the Ukraine Facility, and the STEP initiative. Lawmakers from the “Committee on Industry, Research and Energy” will vote on the provisional agreement resulting from interinstitutional negotiations with respect to the Gigabit Infrastructure Act and the Net Zero Industry Act.


Eurogroup’s Financial Dialogue (February 23): Discussions will span the future of European financial markets and macroeconomic trends, setting the stage for strategic financial planning within the EU.


Trade Talks at WTO (February 25-29): Coinciding with the WTO’s 13th Ministerial Conference in Abu Dhabi, the Foreign Affairs Council (Trade) aims for decisive conclusions and a unified EU stance, spotlighting global trade dynamics.


Agriculture and Fisheries Council (February 26): Amidst sectoral crises, ministers will explore structural responses, reflecting on January’s biosecurity conference and UK fisheries measures, emphasizing sustainable farming practices. You can find the meeting page here.


EuroFlicks & Frequencies: What’s on Our Playlist (LS)

Last week’s episode of DG FISMA’s EU Finance Podcast about the EU’s banking crisis management and deposit insurance (CMDI) with Andrea Beltramello, Head of the Commission’s resolution & deposit insurance unit, talk about reforming the EU’s CMDI framework within the EU’s banking union.


Page Turners and Screen Burners (LS)

A recent paper by the NPL Advisory Panel’s discusses securitisation as a crucial tactic for managing non-performing loans (NPLs), transforming financial risks into marketable assets for investors. By drawing lessons from the euro area’s past debt crises, notably in Italy and Greece, the EU’s strategic interventions have propelled NPL transactions to hit EUR 790 billion over seven years, demonstrating the power of securitisation in maintaining financial stability. Looking ahead, the panel advocates for enhanced data analysis and streamlined regulations to avert future NPL pile-ups, ensuring a smoother economic trajectory.


Featured in the Munich Security Conference report “Lose-Lose”, Dr. Leonard Schütte in a  recent piece dissects the global shift towards economic security amid rising geopolitical frictions, spotlighting the intricate balance between resilience and efficiency in the era of securitized globalization. Highlighting the strategic pivot of autocracies diversifying from U.S.-dominated financial systems in the 2010s, Schütte illuminates the macroeconomic shifts redirecting Western capital from China to alternative allies, underscoring the complex interplay of trade, security, and global cooperation.



Your voice matters! We invite you to share your thoughts, insights, and what’s currently captivating your attention. Let us know what you enjoyed in this edition, what’s moving you right now, and which issues you believe deserve a spotlight. Whether it’s a book, an article, or a topic you’re passionate about, we’re all ears. Your feedback helps us tailor our content to your interests and keep our newsletter engaging. So, drop Lukas, Moritz or Janik a line and let’s keep this conversation going. Your input is invaluable!

Are you a Brussels Bubble Insider? We’re all ears and ready to spill the beans! If you’ve got some juicy gossip, insider leaks, or just something intriguing on your mind, we’d love to hear from you. Let’s share a coffee or a confidential chat and keep the conversation flowing. Your insights are the secret sauce that makes our newsletter sizzle. Drop us a line, and let’s connect!




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