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The Russian central bank has announced it is claiming compensation totaling $230 billion against the securities depository Euroclear. This action is a clear response from the Kremlin against plans to use immobilized Russian state assets to support Ukraine.

The Legal Claim

According to reports in local state media, the monetary authority initiated a lawsuit last week for roughly 18 trillion roubles. This amount is equivalent to the stated $230 billion demand.

European Union officials are set to decide in the coming days on a proposal to leverage around €210 billion in frozen Russian state funds. This scheme entails providing Ukraine with a substantial loan to finance its defence and economic needs.

Most of these assets, amounting to €185 billion, are stored at the Euroclear clearing house in Brussels. This institution acts as the main keeper for the Russian frozen financial reserves.

Divergent Legal Views

EU authorities have argued that their proposal is legally sound. Their position is based on the fact that title of the state assets remains with Russia, despite being it was immobilized in European countries following the 2022 military offensive of Ukraine.

Moscow, however, has called any utilization of the assets as theft. Authorities have threatened reciprocal measures, such as seizing European private investors' assets within Russia.

The head of Russia's sovereign wealth fund, who has assumed a prominent role in peace negotiations, stated on a social media platform that Russia "will win in court" and regain its assets. He added that the EU, the euro, and Euroclear "will face consequences" from the proposal.

Wider Implications

In comments seen as an attempt to drive a wedge between Europe and the United States, the official described the proposal as "a vicious attack on property rights and the global financial system established by the United States."

The clearing house declined to comment on the new lawsuit. The institution has in the past noted it is facing over 100 lawsuits in Russian courts.

Legal Hurdles Ahead

Although courts in European nations are unlikely to recognize rulings from Russian tribunals, analysts anticipate Moscow to pursue implementation in nations with stronger ties to the Kremlin.

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

European Safeguards

EU officials indicated they are developing steps to deter other countries from aiding any Russian legal action against EU companies. They are also crafting protections to shield EU member states with assets in Russia from what they term "illegal expropriation."

The Proposed Loan Mechanism

According to the detailed scheme, the EU would issue an initial €90 billion loan to Ukraine, using the proceeds earned from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would remain untouched.

Kyiv would only be required to repay the money in the event that Russia agreed to pay compensation for the vast destruction inflicted during the ongoing war.

Alternative Proposals

The Belgian government, supported by Italy, Bulgaria, and Malta, has urged the EU to examine an alternative approach for funding Ukraine. This entails common EU debt issuance to fund a loan, using unused funds within the European budget.

Such a proposal, nevertheless, requires unanimity among all 27 EU countries. The Hungarian government, considered aligned with the Kremlin, has previously expressed its objection.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, described the reparations loan as "the strongest solution" for aiding Ukraine. "This mechanism is based on the Russian frozen assets, meaning it doesn't come from our public funds, which is equally important," she stated. "Furthermore, it delivers a clear signal that if you do all this damage to another country, you have to pay for the reparations."