Frozen assets: Avoiding the zero-sum game in supporting Ukraine

The war against Ukraine has brought about the need for short- and long-term support to Kyiv, something which comes at a significant financial cost for Ukraine’s partners, albeit one worth paying. This cost is increased by other pressing challenges, such as high inflation and the green-digital ‘twin’ transformation. 

In this context, there has been much debate around the direct use of all frozen Russian Central Bank assets (roughly US$300 billion (£237 billion) is held across free and open countries) to support Kyiv. Whilst there are concerns, some view this as the best solution; one which is justified morally, savvy politically, and acceptable legally. The case of Germany is exemplary for assessing the risks associated with not directly using Russian assets, and deserves particular attention.

Economic strains and policy decisions in Germany

As one of the major supporters which can also facilitate Kyiv’s approximation to the European Union (EU) – a chosen goal of Ukraine – Germany’s role in supporting Ukraine is pivotal. However, within Germany, the government faces the challenging task of managing a strained economy which is in the process of replacing Russia as its major source of cheap energy. 

Whilst Berlin thought previously that a deep economic interlinkage with Moscow would promote peace and make conflict unlikely, it is now expanding its military potential in light of Russia’s clear threat to Euro-Atlantic security. On top of this, Germany is pushing for the green-digital ‘twin’ transformation. All these issues impact Berlin’s public spending capabilities. Taken together, they represent a significant headache for German decisionmakers trying to manage priorities. Facing the need to cut expenditures to balance the budget, almost half of all respondents in a representative 2023 survey in Germany indicated that the state should save money by decreasing support to Ukraine, which was chosen as the second most popular option.

To go in the opposite direction, and send a strong signal in times of uncertainty coming from Washington, Berlin has decided recently to elevate aid to Ukraine by using money from the ‘special budget’ [Sondervermögen], which was earmarked originally for the expansion of the German Armed Forces. Moreover, Monika Schnitzer, one of Germany’s top five economists which forms an advisory council to the government, recently announced the need for a Solidarity Tax which would be deducted from employees’ gross salary to support Ukraine. While noble, such measures are understood by many as merely redistributive processes which act metaphorically like ‘oil on fire’ in a climate where domestic economic hardships are already of significant concern. Indeed, additional financial burdens on the German populace could ignite widespread discontent and make support to Ukraine appear as a zero-sum game, which may fuel populist movements and ultimately work against Ukraine’s interests.

Populism is already here

This balance between domestic economic welfare and international support for Ukraine is an issue across many of Kyiv’s supporters. The resurgence of populist movements which pitch support for Ukraine as a zero-sum game, exemplified by Donald Trump, impacts how and to what extent nations commit to such support. Shifts can be seen in countries such as Slovakia, where a pro-Ukrainian government got replaced by a pro-Russian coalition which spread anti-Ukrainian narratives.

The decision on whether and how to use Russian assets therefore goes beyond mere legalistic interpretations.

Economic strains in Germany are also creating fertile ground for the rise of populist and anti-Ukrainian sentiments, leading to parties such as the Alternative for Germany (AfD) to gain traction. AfD, a pro-Russian party, calls the EU a ‘failed project’ and envisions the establishment of an alternative ‘Federation of European Nations’, an idea which poses a direct challenge to the political stability of Germany and Europe. It also endangers Berlin’s short- and long-term support for Kyiv. The situation is further complicated by the presence of pro-Russian views within almost all political parties in Germany, views which could regain political legitimacy if aid to Ukraine is further perceived and conceptualised as a zero-sum game.

The stance of major supporters like Germany, or the United Kingdom (UK) and United States (US), can have further ripple effects. The prospect of a Trump presidency could lead to a shift in the collective Western approach to Ukraine, leaving much bigger responsibility on European shoulders, and will open somewhat of a leadership vacuum which London or Berlin (or both) should move to occupy. However, with Germany itself experiencing similar currents to those in Washington, such changes in Washington could undermine support for Ukraine entirely, in turn endangering democracy in Europe.

The use of Russian assets as a political imperative

It is from this perspective that the direct use of frozen Russian assets to fund Ukraine’s reconstruction must be assessed. The Biden administration has shown a degree of openness to this idea, which so far contrasts with the positions of Brussels and Berlin. David Cameron, the British Foreign Secretary, sided in Davos with Washington and put additional pressure on other European capitals by calling the direct seizure a ‘ a downpayment on reparations that Russia will one day have to pay’. There are, undoubtedly, some legal complexities involved. However, this cautious approach, which follows a very conservative legal understanding, carries significant economic and political risks. 

Whilst there is a clear need to support Ukraine for many years to come, there is an imminent danger of fuelling domestic discontent and empowering populist movements if this support is perceived as a redistributive process by domestic populations. This, in turn, will endanger support to Ukraine entirely, as seen in Slovakia. This situation places countries, particularly Germany, in a complex position, as it must consider its internal political dynamics while fulfilling its role as one of Kyiv’s leading supporters.

The decision on whether and how to use Russian assets therefore goes beyond mere legalistic interpretations. Indeed, economic and political considerations here risk becoming victim of too conservative a legal understanding. This question touches upon Germany’s commitment to upholding a cohesive European stance on the biggest security threat since the Cold War in Europe. The choice Berlin makes regarding these assets will influence the immediate support provided to Kyiv and Ukraine’s long-term reconstruction and Europeanisation prospects. However, increased economic strains on its population will give fuel to populists which risk severely damaging Ukraine’s prospects for survival and the openness of the international order. It is therefore time to be pragmatic in these extraordinary times, and time to utilise the huge source of frozen Russian Central Bank assets held by free and open countries currently. Not just to save Ukraine, but also to save ourselves.

Michael Martin Richter is a post-doctoral Research Fellow and Lecturer in International Relations at the University of Surrey.

Embedded image credit: Moscow-Live (CC BY-NC-SA 2.0 DEED cropped and overlaid)