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The Russian central bank has stated it is pursuing compensation amounting to $230 billion against the financial institution Euroclear. This legal step represents a direct response by the Kremlin against proposals to utilize frozen Russian state assets to support Ukraine.

The Financial Lawsuit

According to reports in Russian state media, the central bank initiated a lawsuit last week for approximately 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

EU leaders will decide later this week regarding a plan to use around €210 billion in frozen Russian assets. The proposal involves granting Ukraine with a substantial loan to finance its defence and economic needs.

The vast majority of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the primary keeper for the Russian frozen financial reserves.

A Clash Over Legality

EU authorities have argued that their proposal is legally sound. Their position rests on the fact that ownership of the state assets remains with Russia, even though it was frozen in European countries following the full-scale invasion of Ukraine.

Moscow, however, has labeled any utilization of the assets as theft. It has warned of retaliatory actions, including seizing European private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, a figure who has assumed a key role in diplomatic talks, stated on X that Russia "will prevail in court" and regain its funds. He added that the European Union, the common currency, and Euroclear "will suffer" from the proposal.

Strategic Positioning

In comments seen as an effort to drive a wedge between Europe and the United States, the official characterized the assets plan as "a severe assault on property rights and the international reserves system created by the United States."

Euroclear declined to provide a statement on the latest legal action. It has previously stated it is contending with more than 100 legal cases in Russian courts.

Enforcement Challenges

While courts in European nations are not expected to recognize rulings from Russian courts, analysts expect Moscow to pursue enforcement in countries with stronger relations to the Kremlin.

"Russian monetary authorities could try to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, provided that such holdings can be identified," commented a legal expert from an NSP law firm.

European Safeguards

European authorities indicated they are developing steps to discourage other nations from aiding any Russian lawsuits against European companies. They are also designing safeguards to protect EU member states with investments in Russia from what they call "unlawful expropriation."

How the Funding Would Work

Under the complex plan, the EU would provide an initial €90 billion loan to Ukraine, backed by the cash generated from the immobilized assets at Euroclear. Importantly, Russia's legal claim on the underlying funds would stay unaffected.

Ukraine would solely be obligated to repay the money in the event that Russia agreed to pay reparations for the vast destruction caused during the ongoing war.

Other Funding Ideas

The Belgian government, backed by Italy, Bulgaria, and Malta, has urged the EU to consider an alternative method for financing Ukraine. This entails common EU debt issuance to secure a loan, backed by unallocated funds within the European budget.

This alternative move, nevertheless, requires full agreement among all 27 member states. Hungary's government, viewed as friendly with the Kremlin, has already signaled its opposition.

Commenting on Monday, the EU foreign policy chief, Kaja Kallas, said the reparations loan as "the strongest option" for supporting Ukraine. "The reparations loan is secured against the Russian immobilized funds, meaning it is not drawn from our public funds, which is equally significant," she remarked. "It also delivers a clear message that if you do all this damage to another nation, you must pay for the rebuilding."