German Chancellor Olaf Scholz in December 2022 in Brussels.

German Chancellor Olaf Scholz in December 2022 in Brussels. (Valeria Mongelli/Bloomberg)

Germany is open to using billions of euros in frozen Russian assets to help Ukraine rebuild as long as legal issues can be resolved and allies follow suit.

Chancellor Olaf Scholz's government supports Ukraine's demand for war reparations but hasn't yet taken an official position on seizing assets from the Russian state. The issue is complex and some parts of the ruling coalition are more ardent than others, according to people familiar with the discussions.

The internal tensions reflect the international community's broader struggle to forge a common position. If Berlin can resolve its own issues, it could provide fresh momentum for discussions in the European Union and put pressure on the United States to seize assets, such as central-bank reserves, that have been frozen in retaliation over Russia's invasion.

Foreign Minister Annalena Baerbock wants Russia to pay for the damage caused in Ukraine. The former co-leader of Germany's Greens is a longtime advocate of a tougher stance on the Kremlin and insists that seizing at least some of the frozen assets needs to be an option, officials familiar with the discussions told Bloomberg on the condition of anonymity.

Finance Minister Christian Lindner, who heads the pro-business Free Democrats, is more cautious. He's concerned that confiscating Russian central-bank assets could create a dangerous precedent and lead European nations and their allies into a legal quagmire, the officials said.

The E.U. and partners from the Group of Seven club of rich countries have frozen some 300 billion euros ($311 billion) in Russian central-bank reserves. The E.U. has also blocked around 19 billion euros in assets held by Russian businessmen under sanctions, although these estimates aren't complete. The assets are in limbo and can't currently be distributed.

Instead of a blanket seizure, a more sold path in legal terms could be to target assets of individuals who have been proved to be involved in Russian war crimes, one of the people said. Such cases, though, could take years to make their way through courts, which could reduce such an initiative to mere symbolism.

The detail of the discussions shows how the potential for asset seizures is moving beyond a theoretical debate and toward implementation, but major hurdles remain. Scholz wants any move coordinated with allies and legally tight, the people said.

"The damage is dramatic. It will cost billions and will require the entire global community to develop reasonable solutions," the German chancellor told reporters in August. "It will be a big, big task that has little to do with the Marshall Plan. It will be bigger."

Similar discussions are going on elsewhere. The E.U. will "find legal ways" to seize Russian assets to help fund Ukraine's reconstruction, European Commission President Ursula von der Leyen has said, adding that the bloc would seek to create a structure to manage those funds and invest them to benefit Kyiv.

During a summit in Brussels last month, E.U. leaders discussed several options for using frozen Russian assets to support Ukraine, according to the conclusions published after the meeting.

E.U. leaders called on the bloc's executive arm to come up with a detailed plan, but they also stressed that any asset seizure would have to be in line with international law. They noted that the prosecution of war crimes is a concern to the international community as a whole, a hint that the E.U. should seek common ground with the United States.

E.U. officials have said the 27-nation bloc, which in June formally accepted Ukraine as a candidate for membership, will contribute the bulk of overall financial assistance for Ukraine's rebuilding. The sum could exceed 500 billion euros and is likely to trigger a contentious debate over how to raise the money.

In the United States, congressional lawmakers have pressed President Joe Biden's administration to consider seizing some Russian assets, introducing legislation to authorize it in certain cases. The administration has resisted those entreaties out of concern about discouraging other foreign central banks from parking assets in the United States.

Confiscating central-bank assets from Russia would be a rare step but not a first. In September, the U.S. administration decided to put $3.5 billion in Afghanistan's central-bank reserves under the control of a Swiss-based oversight board to ensure the Taliban regime doesn't get access to the money.

The funds, which the United States froze after the Taliban seized control of Afghanistan in 2021, will be held at the Bank for International Settlements and distributed with the consent of a four-member international board. Such a process could be a blueprint for using frozen Russian assets to rebuild Ukraine.

The Kremlin has denounced the freezing of its reserves as illegal and said it would fight any effort to seize Russian assets and use them for other purposes.

"We're talking about an international act of thievery, in violation of everything," spokesman Dmitry Peskov said on Oct. 31.

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