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The Russian central bank has announced it is claiming damages totaling $230 billion against the financial institution Euroclear. This legal step constitutes a clear response from the Kremlin regarding proposals to utilize immobilized Russian state funds to support Ukraine.

The Substantial Demand

Based on accounts in Russian news outlets, the monetary authority initiated a lawsuit last week for roughly 18 trillion roubles. This amount is equivalent to the aforementioned $230 billion claim.

European Union officials will determine in the coming days on a proposal to use approximately €210 billion in immobilized Russian state funds. This scheme entails providing Ukraine with a large loan to fund its defence and economic needs.

Most of these assets, amounting to €185 billion, reside at the Euroclear depository in Brussels. Euroclear acts as the main custodian for the Kremlin's frozen sovereign wealth.

A Clash Over Legality

EU authorities have argued that their plan is on solid legal ground. Their position is based on the fact that title of the state assets remains with Russia, even though it was frozen in EU countries following the 2022 military offensive of Ukraine.

The Russian government, however, has called any use of the funds as illegal appropriation. It has threatened retaliatory actions, including confiscating European corporate assets within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key role in diplomatic talks, wrote on a social media platform that Russia "will win in court" and retrieve its assets. He warned that the European Union, the euro, and Euroclear "will suffer" from the proposal.

Wider Implications

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

The clearing house declined to comment on the latest lawsuit. The institution has previously stated it is facing over 100 legal cases in Russian courts.

Legal Hurdles Ahead

Although judges in EU countries are not expected to enforce rulings from Russian courts, experts expect Moscow to seek implementation in nations with stronger ties to the Kremlin.

"The Bank of Russia may attempt to implement a Russian legal ruling against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic states, if relevant assets can be located," stated a legal expert from an international firm.

EU Countermeasures

European authorities indicated they are working on steps to discourage other nations from assisting any Russian lawsuits against EU entities. Additionally, they are crafting safeguards to protect EU member states with investments in Russia from what they term "illegal expropriation."

How the Funding Would Work

Under the detailed scheme, the EU would provide 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 remain untouched.

Ukraine would solely be obligated to return the money if and when Russia agreed to pay reparations for the immense damage caused during the nearly four-year war.

Alternative Proposals

The Belgian government, backed by Italy, Bulgaria, and Malta, has asked the EU to consider an different approach for funding Ukraine. This involves joint EU borrowing to fund a loan, using unused funds within the European budget.

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

Speaking on Monday, the EU top diplomat, a senior official, said the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is secured against the Russian immobilized funds, meaning it is not drawn from our taxpayers' money, which is also significant," she remarked. "It also delivers a powerful signal that if you cause all this destruction to another nation, you must pay for the rebuilding."