Europe Prepares To Cross The Rubicon - Risking EU Wide Financial Collapse
Legal Experts Make Final Plea To EU To Pull Back From The Brink
Late last week I wrote an article discussing the EU’s plan to move forward with confiscating up to €210 billion in frozen Russian sovereign assets and use them as collateral for loans to Ukraine—loans that will almost certainly never be repaid. Strip away the narrative and what remains is the EU is proposing the seizure of a sovereign state’s assets. That is an act with potentially monumental consequences.
International law experts have repeatedly warned that the proposal is illegal and would amount to expropriation. It directly violates the principle of state immunity, a cornerstone of customary international law, codified in the UN Convention on Jurisdictional Immunities of States and Their Property, which explicitly protects sovereign assets—especially central bank reserves—from seizure. It also runs afoul of Article 17 of the EU Charter of Fundamental Rights and Protocol No. 1 of the European Convention on Human Rights, both of which prohibit deprivation of property without due process and lawful justification.
To understand what is being proposed, it helps to be precise about the mechanics. As U.S. support for Ukraine’s war effort continues to recede, Kyiv is turning increasingly to the European Union for financing. Yet EU finances are already stretched to the limit. Both the Union’s central budget and those of most Member States are under acute pressure, leaving little room for large, direct transfers.
Rather than fund Ukraine outright, the European Commission has identified an alternative source of funding: roughly €185 billion in Russian Central Bank cash balances currently frozen at Euroclear. The proposal would compel Euroclear to extend an interest-free loan of around €140 billion to the EU. The EU would then pass those funds on to Ukraine under the same terms.
Crucially, Ukraine would only be required to repay the loan if and when Russia ends the war and pays reparations. Framed this way, the arrangement is marketed as an advance on future reparations Ukraine is purportedly entitled to under international law.
Politically, it creates the illusion of €140 billion that is both immediate and costless. But nothing of this magnitude is free. The cost does not disappear—it is merely displaced. In this instance, it is being concentrated in a place where both risk and vulnerability are in fact the greatest. At the CSD itself.
The claim that Russia can eventually recover the funds once it pays reparations is disingenuous. No international tribunal has issued a judgment establishing Russian liability for reparations, nor does international law provide any mechanism by which sovereign assets may be seized first and legally justified later. Everyone involved understands the reality: the loan will never be repaid.
Kyiv bears no downside risk. In practical terms, it has nothing to lose. Europe, on the other hand, does. The risk borne by Euroclear and Belgium would be immense. A loan of this size creates an extraordinary concentration risk on Euroclear’s balance sheet, something that should immediately raise red flags under European banking and financial-stability regulation.
Even if lawmakers were to grant a statutory exemption, that would address the problem only on paper. The underlying risk would remain unchanged. Essentially, the EU is proposing an act of intentional saboutage of its own Central Securities Depository.
Euroclear and the Burden of Neutrality
Euroclear, Europe’s primary securities depository, is based in Belgium. The proposal under consideration would impose an extraordinary legal burden on both Euroclear and the Belgian state. Under Belgian and EU law, Euroclear is required to safeguard client assets and operate on a neutral, non-discriminatory basis.
CSDR Article 33 (ESMA single rulebook): participation criteria must allow “fair and open access” and be “transparent, objective and non-discriminatory.”
Directing Euroclear to participate in the expropriation of sovereign assets would place it in clear breach of those obligations, making it an obvious and immediate target for retaliation—something both Euroclear and Belgian authorities understand well.
With approximately €42 trillion in assets under custody, Euroclear is a systemically critical institution at the very core of the global financial system. Only the DTCC in the United States holds more assets. There is no entity better placed to understand the risks and consequences of what is being proposed.
Over the past year, Euroclear has repeatedly warned that the EU’s plan could destabilize the international financial system. That this has been expressed publicly is of huge significance. Belgium has echoed those warnings, stating plainly that the legal reprisals likely to follow could be financially catastrophic for the country itself.
Italy has recently expressed similar fears, as have countless legal experts. These warnings are, in a sense, unprecedented, because what is being proposed is itself unprecedented. Euroclear is being pushed to take on a massive, highly concentrated, politically driven risk that EU banking and financial-stability rules are specifically designed to prevent.
Just today, on the eve of the decisive vote on whether to proceed with the seizure of Russian assets, Veerle Colaert, Professor of Financial Law at KU Leuven in Belgium, together with her co-author Paul Dermine, Professor of European Union Law at the Université libre de Bruxelles, issued a final warning, urging policymakers to step back from the brink. Their intervention, published on the Oxford Law Blog, leaves no doubt about the gravity of what is being voted on.
I strongly recommend reading it in full.
The plan would cause serious collateral damage to Europe’s already ailing capital markets. Securities listed on a European exchange can only be held through a European central securities depository, and Euroclear is the largest such institution in Europe. If foreign powers gain the impression that their reserves held at Euroclear can be redirected at will for European policy objectives, their willingness to invest in European securities may well erode. The consequences for Europe’s capital markets—and for the European companies and governments that depend on them to meet their long-term financing needs—would be incalculable. The reparation loan risks risks completely undermining the European Commission’s own recent efforts to strengthen Europe’s capital markets.
Forcing a Violation of Financial Rules
There is a very specific reason sovereign assets—especially central bank reserves—have been treated as sacrosanct since 1945. It has nothing to do with morality and everything to do with systemic stability. Even the decision to freeze Russian assets was widely viewed as an extraordinary breach, one that materially accelerated the global move out of sovereign debt and into gold, with prices more than doubling in the aftermath. But a freeze is not confiscation. Ownership does not change.
Crossing the line from immobilization to permanent seizure is something else entirely. It is the open destruction of the rulebook on which the post–Second World War financial order was built, carried out in full view of the world. That signal cannot be undone. At this juncture in history, it is difficult to imagine a more self-defeating and destructive action that could be taken by the EU.
Whilst central bank assets have been frozen in the past, the impact was relatively minor. Iran after 1979, Iraq after Kuwait, Libya, Afghanistan—it was always tied to one of America’s “we want you to experience democracy so badly we decided to bomb you” regime changes. What is happening now is different in both scale and intent. To begin with, the $210 billion of assets being held at Euroclear in Belgium is a huge amount. It amounts to roughly 50% of Russia’s central bank reserves.
When Russia’s legal challenges materialize, Europe’s position will be especially indefensible given that it is not even a formal adversary in the conflict. The only state with anything approaching a legitimate argument for confiscating Russian assets would be Ukraine—the country actually at war. Yet Ukraine is neither undertaking nor capable of carrying out such a seizure.
Instead, the assets are being taken by a systemically important financial institution, acting under Belgian jurisdiction and at the political direction of the European Union. That fact alone collapses whatever legal cover the plan will claim to posses. This is not wartime confiscation by a belligerent party; it is peacetime expropriation by third parties.
Unlike previous cases in which sovereign assets were seized, Russia possesses real and credible capacity for retaliation. That capacity spans cyberwarfare, financial countermeasures, and, ultimately, military force. Moscow has already stated unambiguously that if Europe proceeds, the move will be treated as an escalatory act, not a de-escalatory one. On all fronts.
“If this happens, Russia will pursue the EU states, as well as European degenerates from Brussels and individual EU countries who try to seize our property, until the end of the century,” former Russian president Dmitry Medvedev wrote on Telegram.
Russia will pursue European states in “all possible ways” and in “all possible international and national courts” as well as “out of court”.
The Abandonment of the Rules-Based Order
The EU is expected to formalize this decision imminently. If enacted, it will mark the deliberate abandonment of one of the final hard constraints that made the post–World War II international order viable. This system of guarantees delivered Western societies an unprecedented period of stability—not because the system was fair or moral, but because certain foundations were kept beyond the reach of narrative warfare. The so-called “rules-based order” existed only insofar as there were, in fact, some rules. Even competing mafias will typically have ground rules.
For free trade to function, and for a disparate group of nations, including adversaries, to retain functioning relationships, sovereign assets had to remain untouchable. Because at the international level, there is never settled agreement on justice, blame, or provocation for the many narratives we see around war and conflict. What is considered just or fair shifts constantly, shaped by power, politics, and convenience.
Despite how the war is framed in Western media, the claim that Russia’s invasion was an unprovoked act of imperial madness is not a majority view globally. Nations representing roughly five billion people do not accept the Western narrative. Victoria Nuland’s leaked 2014 phone call during the Maidan uprising—telling the U.S. ambassador to Ukraine to “fuck the EU”—is a reminder of how international conflicts actually work. There is the official story, the counter-story, and then, finally, the truth.
Regime change in Ukraine, followed by sustained provocation, led to a war that has now cost over a million lives. Much of the world sees that clearly, which is why it refuses to line up behind the West’s view of the conflict. But even if they did, the idea that a supposedly neutral counterparty can now take assets because of political coercion could rip apart the system.
The 1900–1945 Analogue
The period between 1900 and 1945 is the closest historical analogue to what we are living through now—except this time the pace of collapse is far faster. That era marked the dismantling of an existing world order: a prolonged breakdown that dragged the entire planet into chaos, war, and systemic violence. By the end of it, nearly every contender for global dominance had been destroyed or exhausted—stripped of their gold, political legitimacy, and credibility—clearing the ground for a new order to be imposed.
It was the transition from a dying order to a new one, and was marked by the rapid abandonment of the rules that defined the old system. Once that process begins, nothing remains off the table—not even the looting of sovereign assets. This is an intrinsic feature of a cycle end, and it reminds us that what appears unprecedented in the post–Second World War era is not unprecedented historically.
With that in mind, it is worth taking a brief detour into history to draw a few comparisons to what is taking place in 2025.
Dynastic Collapse and Expropriation
The process unfolded with a set of recognizable hallmarks—signals that are now visible everywhere. Before that collapse, Europe sat at the centre of global power, dominated by long-entrenched ruling families whose authority underpinned international politics. When the reset came, many of those dynasties were not merely displaced but annihilated. The most striking example is the Romanovs, Russia’s ruling royal house and one of the wealthiest families in history.
The Russian Revolution was not a natural political upheaval. It was a mechanism for expropriation. The Tsar and his family were murdered, and everything they owned inside Russia was seized and nationalized. But what matters most for our purposes is what happened to their wealth outside the country. Billions of dollars in assets held at Western financial institutions—beyond the reach of the Bolsheviks—disappeared.
As the old system collapsed, its rules were quickly abandoned. No comprehensive audit was ever produced, but it is well established that banks in France, Switzerland, and London held numerous accounts containing sums totaling many billions belonging to the Romanovs. Surviving members of the family pursued legal claims for decades. None were successful. The wealth was absorbed by the system. Law followed power, not principle.
The Romanovs were not unique. In 1918, the House of Habsburg-Lorraine—one of the central pillars of the global order—was dismantled. For more than six centuries, the Habsburgs had ruled large parts of Europe. By the early twentieth century, they governed the Austro-Hungarian Empire, a great power spanning Central and Eastern Europe and ruling more than 50 million people. The Habsburg emperor sat at the center of European diplomacy, commanded a vast standing army, and played a decisive role in maintaining the continental balance of power.
Their wealth matched their status: hundreds of palaces and estates, enormous landholdings, mines, forests, treasuries of gold and jewels, and one of the greatest art collections in the world. In modern terms, their combined dynastic wealth would likely be measured in the hundreds of billions—possibly exceeding a trillion dollars. Within a few short years, it was gone.
After the collapse of the Austro-Hungarian Empire, the Austrian Republic passed the Habsburg Law of 1919, confiscating all property of the House of Habsburg-Lorraine without compensation. Palaces, land, artworks, financial assets, and estates were seized outright. Family members were exiled and forced to formally renounce their claims. Similar confiscations followed across successor states, each operating on the same logic: the imperial order had collapsed, and with it any obligation to respect its legal claims.
These episodes were not aberrations. They are cyclical events that emerge during periods of systemic collapse. Understanding this is key for making sense of what is happening in the world today, in my opinion.
When State Assets Are Stolen
During the Second World War, similar betrayals took place. Of particular relevance to the present situation is what happened to Czechoslovakia’s gold following the Nazi invasion. At the time, Czechoslovakia’s entire gold reserve was held outside the country for safekeeping. Anticipating invasion, the gold had been placed in accounts at the Bank for International Settlements, with most of it physically stored in the vaults of the Bank of England. What happened next should unsettle anyone who doesn’t yet fully appreciate counterparty risk.
In March 1939, after Nazi Germany had occupied Czechoslovakia, the Bank for International Settlements authorized the transfer of Czech gold held at the Bank of England—on account for the National Bank of Czechoslovakia—to an account belonging to Germany’s Reichsbank. The Bank of England raised no objections, despite later acknowledging that it knew precisely who owned the gold and where it was being sent. Important to note, this took place at the same time Britain was preparing to declare war on Germany.
As the Bank of England itself later recorded:
“On March 21, 1939, the Chief Cashier received the request to transfer about £5.6m of gold from the BIS No.2 Account to their No.17 Account.
The Bank, although it was no business of theirs, was fairly sure that the No.2 Account was a Czech National Bank Account and they believed, although they were not sure at the time, that No.17 was a Reichsbank Account.
The amount was transferred on the same day and a small further amount on March 22. Between March 21 and 31, the gold received on the No.17 Account was disposed of, with about £4m going to the National Bank of Belgium and the Nederlandsche Bank and the remainder being sold in London on behalf of Germany.”
What we now know is that approximately £5.7 million worth of gold—worth roughly $5.7 billion today—was transferred to the Reichsbank and then sold on Germany’s behalf. Some of it was sold in London, while other portions were routed through banks in Belgium, the Netherlands, and New York—all nations that would soon find themselves at war with Germany.
Financing the War Machine
After the war, the Bank of England published a report defending its conduct, arguing that its role had been misunderstood and its actions misinterpreted. It maintained that it had acted in accordance with its own procedures, behaving as a neutral custodian. From the Bank of England’s perspective, the transfer had been authorized by the BIS, and the Bank was acting on instructions rather than originating the decision.
Albrecht Ritschl, professor of economic history at the London School of Economics, told CNN that the Bank of England “in cold blood, and pretending not to know what these accounts were and where the gold was coming from, agreed to the transfer.” Ritschl said: “From the Czech point of view this was very clearly a breach of trust.” David Blaazer, a historian at the University of New South Wales and author of a study on the Bank of England and Czech gold, told CNN: “There is absolutely no doubt that the Bank knew which numbered BIS account belonged to which central bank.”
Both the BoE and the BIS breached Czechoslovakia’s trust and its express instructions, legitimizing what would otherwise have been considered outright expropriation and converting the movement of gold into a formal lawful transfer. It did this in spite of having presented itself as a safe harbor for Czech reserves. The war that followed was marked by repeated instances of institutional betrayal and financial looting of this kind.
The consequences for the people of Europe were monumental. The war killed roughly 100 million people—around 3% of the world’s population. An estimated 21–25 million were military personnel, including POWs. 40–60+ million were civilian deaths. Another 20–28 million died from famine and disease triggered by the war.
The war also tripled Britain’s national debt and bankrupted Germany (again). Of course, this debt was owed to someone. So this is not a story without beneficiaries. Numerous books have been written regarding who really profited from the Second World War, and it wasn’t limited to central banks. Private Swiss banks deserve a special mention. As does the Vatican Bank. As well as the corporations involved in supplying equipment and technology to both sides of the war.
This is instructive today because, historically speaking, we are tracing a similar path—one in which powerful interests are again pushing toward escalation rather than restraint. At this point, it feels like a runaway train—much as it must have felt in the 1910s and again in the 1930s. Throughout that period, a toxic mix of financial shocks, economic stagnation, deep political and social polarisation, extreme debt burdens, and disastrous, self-serving decisions by politicians and financiers alike brought the world to its knees. The result was the collapse of the existing order and the emergence of a new one.
That is the order we still inhabit today—but it too is now on the cusp of failure. This is why I believe we are living through a comparable historical moment, marked by many of the same structural features of decay, the same risks, and driven by many of the same delusions that led the world to two world wars. Perhaps that is why, last week, NATO Secretary General Mark Rutte made what for many, sounded like an absurd statement:
“Russia has brought war back to Europe, and we must be prepared for the scale of war our grandparents and great-grandparents endured.”
Defence spending in Western and Central Europe is now higher than it was at the end of the Cold War. But if history is indeed rhyming, financial collapse and depression-like economic stagnation would come before any major conflict, not after. It is precisely this kind of economic loss and instability that creates the fertile ground for war.
That was the story of the twentieth century. It could yet become our own.
The Indefinite Freeze and the Legal Trap
Following the release of my first article, the EU doubled down on their position by freezing Russian assets indefinitely. This was a key step required to proceed with confiscation. Up until this point, Russian assets were being kept “frozen” through a rolling six-month vote, with the worry being that if, at some point in the near future, the war ends and no justification can be found for rolling over the freeze any further, enormous liability would immediately fall on Euroclear and Belgium.
On December 12, 2025, the European Union agreed to indefinitely freeze Russian central bank assets held within the bloc. This strategic move eliminates the previous six-month renewal requirement, effectively neutralising veto threats from member states like Hungary.
The decision to freeze Russian assets indefinitely is strategic and inseparable from the plan to force Euroclear to provide Russian asset to the EU to issue loans to Ukraine. By making the freeze indefinite, the assets remain trapped under all outcomes, clearing the path for confiscation and removing the risk of automatic release if the hostilities suddenly end.
Russia Responds
Russia has already responded. This week it initiated criminal proceedings against Euroclear in Russian courts. On paper, this is symbolic—Russian judgments won’t be recognized outside Russia. But that misses the point. This is a declaration of intent. The message is simple: go ahead and take our assets, and we are coming for you—financially, legally, and asymmetrically.
The Bank of Russia filed a lawsuit in Moscow seeking 18.2 trillion rubles ($229 billion) from Euroclear, the state-run Tass news service reported Monday. The central bank said in a statement Friday that it would sue the Belgium-based depository for “unlawful actions” that make it “impossible for the bank to dispose of its funds and securities.”
The sum sought at Moscow Arbitration Court would be equal to the total amount of its frozen assets as well as additional income lost from them, the regulator told Russian wires. The central bank will seek to have the case heard in closed court, the RBC news site reported, citing two sources it didn’t identify.
Russia has also issued a warning, that moving ahead with the seizure is crossing a red line, and would be reason for war. Again, history is beginning to rhyme.
Russia issued one of its starkest warnings yet on Thursday, saying it could treat any European Union move to seize its frozen assets as a “casus belli,” or justification for war.
In a statement on the Russian platform MAX, Dmitry Medvedev — former Russian president and now deputy secretary of the Security Council — warned that the EU’s attempt to “steal Russian assets blocked in Belgium” under a reparations mechanism would cross a red line.
He said such a move could amount to “a special kind of casus belli,” with “all the ensuing consequences for Brussels and individual EU countries.”
— TRTWORLD
Clearly Russia is preparing to retaliate across multiple fronts. Of note, more than €20 billion in Euroclear-linked assets remain inside Russia’s own settlement system at the NSD, and those assets are likely to be confiscated. But the financial risks, and consequences, will not stop there. A broader global flight to safety could follow, ensuring that reprisals extend far beyond Europe itself.
That dynamic is the focus of the second part of my article: how a systemic crisis could unfold as a result of the EU’s decision to seize Russian assets, and what the consequences would be for investors.