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Russia's monetary authority has announced it is claiming damages totaling $230 billion against the securities depository Euroclear. This move represents a clear response from the Kremlin regarding plans to use frozen Russian sovereign funds to support Ukraine.

The Financial Lawsuit

According to accounts in Russian news outlets, the central bank initiated a lawsuit last week for an estimated 18 trillion roubles. This sum corresponds to the stated $230 billion demand.

European Union officials are set to determine in the coming days regarding a proposal to leverage approximately €210 billion in immobilized Russian state funds. The proposal entails granting Ukraine with a substantial loan to finance its defence and financial needs.

The vast majority of these funds, amounting to €185 billion, are held at the Euroclear depository in Brussels. This institution serves as the primary keeper for the Kremlin's frozen sovereign wealth.

Dispute on Ownership

European Union authorities have maintained that their plan is legally sound. They argue is based on the fact that title of the state assets remains with Russia, despite being it was frozen in European jurisdictions shortly after the full-scale invasion of Ukraine.

The Russian government, in contrast, has labeled any use of the funds as illegal appropriation. Authorities have warned of retaliatory actions, such as confiscating EU private investors' holdings within Russia.

The head of Russia's sovereign wealth fund, who has taken on a key position in diplomatic talks, wrote on a social media platform that Russia "will prevail in court" and retrieve its assets. He added that the EU, the common currency, and Euroclear "will face consequences" from the proposal.

Geopolitical Maneuvering

With statements seen as an effort to create division between Europe and the United States, the official characterized the assets plan as "a vicious assault on property rights and the international reserves system created by the United States."

Euroclear declined to comment on the new legal action. The institution has in the past noted it is facing over 100 lawsuits in Russian jurisdictions.

Legal Hurdles Ahead

While judges in EU countries are not expected to recognize judgments from Russian tribunals, analysts anticipate Moscow to seek implementation in nations with closer ties to the Kremlin.

"Russian monetary authorities could try to implement a Russian court's decision against Euroclear in countries such as China, Hong Kong, the UAE, Kazakhstan, and other sympathetic nations, if relevant assets can be identified," commented a lawyer from an NSP law firm.

EU Countermeasures

European authorities said they are developing measures to discourage other countries from assisting any Russian legal action against European entities. They are also crafting safeguards to shield EU member states with investments in Russia from what they call "illegal expropriation."

The Proposed Loan Mechanism

Under the complex scheme, the EU would issue an initial €90 billion loan to Ukraine, backed by the cash earned from the frozen assets at Euroclear. Importantly, Russia's ownership claim on the underlying funds would remain unaffected.

Kyiv would solely be obligated to repay the loan in the event that Russia agreed to pay reparations for the immense destruction inflicted during the nearly four-year war.

Other Funding Ideas

The Belgian government, supported by Italy, Bulgaria, and Malta, has asked the EU to examine an alternative method for financing Ukraine. This entails common EU debt issuance to fund a loan, backed by unused funds within the European budget.

This alternative move, nevertheless, demands full agreement among all 27 EU countries. Hungary's government, viewed as friendly with the Kremlin, has previously expressed its opposition.

Speaking on Monday, the EU foreign policy chief, a senior official, described the proposed loan scheme as "the strongest option" for supporting Ukraine. "This mechanism is based on the Russian immobilized funds, which means it doesn't come from our public funds, which is also important," she stated. "It also sends a powerful message that when you cause all this destruction to another country, you have to pay for the reparations."