ECB's Šimkus backs seizure of Russian assets for Ukraine, breaking with Lagarde
A member of the European Central Bank's Governing Council has broken ranks with the institution's leadership, arguing that the euro faces greater danger from a Russian victory in Ukraine than from the seizure of frozen Kremlin assets. Gediminas Šimkus, governor of the Bank of Lithuania, told POLITICO last week that the ECB's preoccupation with the international reserve status of the single currency misses the strategic point: if Ukraine falls, the conflict will spill into neighbouring EU states, shaking investor confidence far more than any legal precedent set by using sanctioned cash.
The intervention marks an unusual public disagreement within the ECB's decision-making body. President Christine Lagarde has consistently warned that seizing the roughly €140 billion of Russian central bank reserves immobilised at the Brussels-based clearing house Euroclear would violate sovereign immunity and discourage other nations from holding euros in their official reserves. That, she argues, would frustrate the EU's long-standing ambition to make the euro a true global reserve currency, lowering borrowing costs for European governments and companies.
Šimkus does not dismiss the reserve-currency argument. He acknowledges that property rights, deep capital markets, geopolitical stability and institutional adaptability all matter. But he insists they cannot be viewed in isolation. "We can't focus only on one aspect," he said. His calculation is blunt: a Russian breakthrough would bring the war to the EU's eastern border, triggering capital flight, risk premium spikes and a fundamental reassessment of European security that no legal nicety could offset.
The proposal under discussion at this week's European Council meeting in Copenhagen originates from the European Commission. According to a draft obtained by POLITICO, the EU would exchange the Russian cash held at Euroclear for zero-coupon bonds issued by the Union itself. The liberated cash would then be lent to Kyiv in tranches. The structure attempts to sidestep the legal obstacle of outright confiscation by framing the operation as a swap and a loan, preserving a veneer of contractual regularity while delivering the fiscal effect of asset use.
Germany's Chancellor Friedrich Merz gave the plan a significant political boost on Thursday, writing in the Financial Times that he supports the mechanism, with the caveat that proceeds finance only military aid. That restriction reflects Berlin's enduring reluctance to mutualise budgetary support for Kyiv, but it also signals that the largest EU economy is no longer vetoing creative use of the frozen reserves. The shift is notable: twelve months ago, German officials were among the loudest voices urging caution.
The urgency behind the Copenhagen discussion is measurable. Kyiv formally requested a new programme with the International Monetary Fund earlier this month, and negotiations over its shape are underway. The IMF estimates Ukraine will need $65 billion in external financing to reach the end of 2027. Ukrainian Finance Minister Serhiy Marchenko puts the four-year requirement between $150 billion and $170 billion. The Fund is likely to cover only a fraction of either figure. EU budgetary resources are stretched, and national parliaments are wary of new appropriations. The Russian assets at Euroclear represent the only large, immediately accessible pool of money that does not require fresh taxpayer contributions or market borrowing.
Šimkus framed the choice in stark terms: "It's important that Europe finds ways to provide resources to Ukraine to defend its freedom and its country, [even] through the seizure of Russian assets." The Lithuanian governor's perspective is shaped by geography. Vilnius sits closer to the front line than Frankfurt, and Baltic policymakers have long argued that the war's outcome will be decided as much by Western financial endurance as by battlefield dynamics.
The core legal obstacle remains the principle of sovereign immunity, which protects central bank assets from seizure. The ECB's legal service has advised that any unilateral appropriation would expose the Eurosystem to litigation and reputational damage. The Commission's swap-and-loan structure is designed to mitigate that risk by keeping the assets on the EU's balance sheet as collateral, but lawyers disagree on whether the distinction would survive a challenge at the European Court of Justice or in national jurisdictions.
Russia has already threatened retaliation, including seizure of European assets in its jurisdiction and legal action against Euroclear. The clearing house itself, a critical piece of global financial infrastructure, could face operational disruption. These risks are not theoretical: Moscow has demonstrated willingness to weaponise energy, food and financial channels since 2022. The question for EU leaders is whether the political cost of inaction, a potential Ukrainian collapse, outweighs the legal and financial blowback of action.
The trajectory over the past year has been striking. In late 2024, EU leaders declined to endorse asset seizure at a Brussels summit, citing ECB warnings and legal uncertainty. Since then, three developments have shifted the calculus. First, the US election cycle introduced profound doubt about the continuity of American military and financial aid. Second, Ukraine's counteroffensive stalled, and its manpower shortages deepened, making external financing a condition of continued resistance. Third, the ECB's own governing council has fractured, with Šimkus joined by several other national governors, though not yet a majority, in questioning the priority given to reserve-currency status over immediate security.
The Copenhagen meeting on 1 October is not expected to produce a final legal act. It is a political checkpoint. Leaders will assess whether the Commission's proposal commands sufficient support to move to the technical negotiation phase, where the European Parliament, the Council's legal service and the ECB's opinion will all weigh in. The presence of Merz's endorsement suggests the Franco-German axis, often a brake on bold initiatives, may this time be aligned in favour.
The scale of Ukraine's requirement explains why the Euroclear cash has become the focus. The IMF's $65 billion estimate through 2027 assumes a baseline scenario that many in Kyiv consider optimistic. Marchenko's $150, 170 billion range incorporates reconstruction, debt service and the cost of maintaining a military capable of deterring further aggression. EU member states have provided about €145 billion in financial, humanitarian and military aid since 2022, but national budgets are tightening. The European Peace Facility, the main instrument for reimbursing military donations, is nearly exhausted. The Ukraine Facility, a €50 billion package agreed in early 2024, runs only to 2027 and is already partially committed.
Against that backdrop, the €140 billion at Euroclear, even if only the interest is ultimately spent, represents a balance-sheet resource of unique size. The zero-coupon bond swap would not increase EU debt in the conventional sense, since the bonds would be backed by the Russian assets themselves. Ratings agencies have not yet pronounced on the treatment, but preliminary soundings suggest they would view it as a contingent liability rather than direct sovereign borrowing.
Leaders will not sign a regulation on Wednesday. They will give a political mandate, or withhold one. The key variables are the legal opinion of the Council's jurists, the ECB's formal stance (which Lagarde will likely reiterate), and the willingness of capitals like Paris, Rome and Madrid to follow Berlin's lead. Poland and the Baltic states are expected to push hardest. Hungary, which has blocked previous Ukraine aid packages, may seek concessions elsewhere in return for acquiescence.
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