Afrasianet - Laila Nicola - The confiscation of central bank assets is in stark contrast to the principle of "sovereign immunity of states" enshrined in customary international law, and there is no precedent for a state to confiscate the assets of another country's central bank.
The European-Western debate over the use of frozen Russian assets to finance and rebuild Ukraine (within the proposed basket for a solution in Ukraine) has revived historical debates about the economic sanctions imposed on Germany after World War I in the Treaty of Versailles.
Although the European justifications consider that the primary motive in both cases is to hold the aggressor state responsible for the war, a comparison of the mechanisms and possible outcomes reveals fundamental differences in the prevailing political and international structures between the two cases, in addition to many legal and political caveats that should not fall into them.
In order to assess the extent to which the West is able to impose this clause within the plan set by US President Donald Trump to solve the Ukrainian crisis, which President Vladimir Putin considered that there are things that he does not agree with, including the issue of Russian funds frozen abroad, and to compare what the Westerners want today with what the victors of the First World War did by imposing the "Carthaginian Peace and astronomical reparations" on Germany, as described by the economist John Maynard Keynes, the following can be mentioned:
Military balance of power
In realism, sanctions and the redistribution of the economic cost of war are understood as an expression of the balance of power, in which the victor imposes his conditions on the vanquished and demands reparations.
In 1919, Germany was a militarily defeated state, under occupation, and lacking the ability to interdict. This balance of power formed the basis for the imposition of astronomical financial reparations without regard to Germany's economic capacity or future reactions.
In contrast, Russia today is not a defeated state, and it still retains enormous military power and vast geopolitical influence, as well as a nuclear arsenal that makes direct pressure on it risky.
I mean that the realistic conditions that enabled European powers to impose the Versailles regime do not exist in the current context, which explains Europe's inability to fully confiscate Russian assets or use them without careful calculations. Pressuring a nuclear power that makes military advances on the ground and gnaws away at Ukrainian geography (albeit slowly) is not the same as pressuring a defeated state that is devoid of the ability to respond.
II. International Law
There is no international legal framework today that enshrines the right to confiscate the property of a sovereign state without a peace treaty or international judicial ruling.
The Treaty of Versailles was a formal, binding international agreement signed by Germany forced by defeat. Legally, Germany relinquished its financial sovereignty by its signature.
The seizure of central bank assets is in stark contrast to the principle of "sovereign immunity of states" enshrined in customary international law, and there is no precedent for a state to confiscate the assets of a central bank of another country that has not officially declared war on it (the West is not at war with Russia) and without a Security Council resolution. The West wants Russia to sign this clause as part of the basket of conditions included in the Trump peace agreement.
Europeans recognize that the use of Russian assets without due process would set a dangerous precedent that could lead to a loss of international confidence in European markets, capital flight from the EU to more legally stable areas, and the risk that Russians would open decades-long lawsuits that undermine confidence in the rule of law in the bloc.
Russia's frozen assets are estimated at $300 billion, and allowing them to be disposed of would set a precedent that threatens the immunity of the sovereign assets of all countries, prompting Europe to dispose of the benefits of those assets rather than the assets themselves.
Financial risks
The euro and the dollar are adopted as global reserve currencies based on the pillars of "rule of law" and "property protection," and therefore, the confiscation of a sovereign state's assets without an international judicial ruling will send panic signals to other countries that will push them to diversify their reserves and flee Western financial markets, weakening Western financial influence in the long term.
In contrast, Russia maintains billions of dollars worth of Western assets within its jurisdiction, meaning Russia could do the same and confiscate the money of Western companies.
As a result, these risks, combined with legal complexities, have led many European countries to previously disapprove the confiscation and use of Russian assets, because they understand that asset seizure would create a legal precedent that could haunt them later. Breaking the sovereign immunity of central banks is a "Pandora's box" that the West does not want to open.