Estonian formin: Hungary would hurt EU taxpayers by lifting Russia sanctions

Estonian Foreign Minister Margus Tsahkna. Photo: Tairo Lutter

Hungarian Prime Minister Viktor Orbán is once again threatening to block the extension of European Union sanctions, jeopardizing the ability to retain frozen Russian central bank assets, which could result in billions of euros in additional obligations for the EU and G7 countries, according to Estonian Foreign Minister Margus Tsahkna.

«The problem [is] that if these assets are released, the collateral for the loan provided to Ukraine by the European Union and G7 countries will be gone,» Tsahkna told the Financial Times, referring to scenario where EU sanctions lapse. The package in question is worth 50 billion euros and is financed using interest income earned on frozen Russian central bank assets.

G7 includes the United States, Canada, Japan, France, Italy, Germany and the United Kingdom.

The vast majority of the frozen assets totaling around 260 billion euros are held at Euroclear, a financial intermediary based in Belgium. If the EU fails to unanimously extend the sanctions, those assets could end up back in Russia, according to Tsahkna.

«If that happens, the central bank assets will be delivered to Russia, to [Vladimir] Putin, as an award,» he said.

Estonia advocates G7 countries seizing the Russian assets rather than leaving them subject to sanctions. Some countries in the EU and the G7 have resisted such a move, arguing it may violate international law and undermine faith in the euro. Belgium, where some 190 billion euros' worth of the assets are held, strongly opposes the idea.

«Confiscation is not an option for the moment due to all the risks that are related to it,» Belgian budget minister Vincent Van Peteghem told the FT. He said it is better to keep these frozen assets as a lever during the peace negotiations with Russia.

Tsahkna admitted that Belgium cannot be left alone in that complicated situation and that such a decision would need to be collectively taken by a group of states, ideally including the entire G7.

The European Commission has been trying to develop a fallback plan in case Orbán follows through on his threat. Tsahkna proposed forming a "coalition of the willing" that goes beyond the EU to include G7 members and countries such as Norway.

«We need a legal framework that we can rely on even if EU unity breaks down,» he stressed. According to Tsahkna, negotiations with Hungary should not be cut off, as the country is facing serious economic problems and is heavily dependent on EU funding.

Meanwhile, Ukrainian officials have warned that Russia has been trying to find ways to get to the assets despite them being frozen, for example by trying to sell portions to investors, who would recover them once they are unfrozen at a future date. Tsahkna dismissed those schemes as unrealistic.

«The fact is that they don’t have these assets, they are frozen in Europe,» he said.

The Estonian foreign minister noted that ultimately, what happens with the sanctions rollover and the frozen assets depends on peace negotiations brokered by the United States.

«Even President Trump has said in theory that he gives the time up to the end of April and then he will act,» he said.