Divisions have emerged within the European Central Bank (ECB) as the growing need for urgent defense funding in Europe begins to outweigh legal and technocratic arguments about how the single currency should be managed.
After the U.S. effectively weakened Europe’s security guarantees—amid a conflict between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky in the Oval Office—European leaders have been actively seeking ways to rapidly increase defense spending.
Faced with budget deficits and high public debt levels, European policymakers are discussing the possibility of confiscating approximately €200 billion in frozen Russian reserves held in Belgium, which are currently being used as collateral for a €50 billion G7 loan to Ukraine.
The ECB in Frankfurt had previously warned that such actions could undermine the euro’s standing in global financial markets. However, on Friday, Latvian central bank governor Mārtiņš Kazāks became the first member of the ECB’s Governing Council to support the idea of confiscation, calling it a “viable option” to assist Ukraine.
Kazāks’ comments, coming from a representative of a country bordering Russia, indicate a recognition that the situation demands radical measures, even at the risk of impacting global financial markets. Other Baltic central banks have expressed partial support for the idea, although their official stance remains neutral.
ECB President Christine Lagarde continues to publicly insist on adherence to legal norms. On Thursday, she noted that the ECB only advises governments but does not make decisions. Lagarde emphasized that international law and potential risks to confidence in the euro must be taken into account.
Opponents of confiscation argue that it would set a dangerous precedent, potentially leading central banks from other countries (such as China) to withdraw their reserves from Europe. This could weaken the euro’s status as an alternative to the dollar in international transactions.
Additionally, confiscation could damage the eurozone’s reputation as a safe financial center. Some experts warn that such a move could impact clearing and settlement systems that facilitate transactions not only in euros but also in dollar-denominated assets (including Chinese holdings).
Despite all the risks, the desire to utilize Russian assets is growing. European politicians, such as Harijs Rokpelnis of Latvia’s ruling coalition, argue that ECB advice can be ignored. They acknowledge that while the ECB has valid technocratic arguments, political necessity demands decisive action.
Some economists believe that any potential financial fallout could be mitigated. For example, if countries like China or Saudi Arabia start divesting from European bonds, the ECB could intervene by purchasing them through emergency mechanisms.
The decision on confiscating Russian assets will test the balance of power between politicians and the independent central bank. The influence of national central banks within the ECB’s Governing Council may grow, particularly as some governors near the end of their terms and may depend on political support.
Ultimately, while the ECB may formally maintain its independence, politicians are likely to move forward with the confiscation of Russian assets.
