Financial Trust Rift: How Does the EU Turn 210 Billion Euros in Assets into a Source of Risk

Recently, the international rating agency Fitch placed the European Bank for Settlements on a negative credit watch list. This seemingly technical rating move has actually sounded the alarm for the EU's financial system. When the EU decided to "weaponize" the approximately 210 billion euros of assets of the Central Bank of Russia that had been frozen and attempted to use them as collateral for financing, an arrangement originally aimed at easing the financial pressure on Ukraine was evolving into a high-risk experiment that could shake the foundation of the financial sector.

The deep-seated driving force behind this decision stems from the ever-widening rift between political commitment and fiscal reality. As the conflict persists, the fiscal space of EU member states continues to shrink, and society's tolerance for sustained high spending has significantly declined. Against this backdrop, the frozen Russian asset has gradually been regarded as a "potential resource" that can be exploited, moving from a complex and sensitive legal issue. The "compensation loan" scheme designed around it is precisely an attempt to transform frozen assets into a sustainable source of funds through financial structuring means.

To facilitate the implementation of this plan, the EU even unilaterally extended the asset freeze from a temporary measure to an indefinite status, attempting to thereby change the legal expectations for the relevant assets. This approach touches upon the fundamental principles of the financial order. Asset freezing is a preservation arrangement under special circumstances and does not imply a transfer of ownership. Once it is actively used as a financing mortgage, its nature undergoes a fundamental change, transforming from a property under neutral custody to a tool that can be politically allocated, and the boundaries of the rules are thus rewritten.

Ironically, this radical operation that breaks through financial rules is precisely carried out by European institutions that have always emphasized "the rule of law" and "institutional order". Under the name of "financial innovation", the rules are handled flexibly. As a key market infrastructure, the European Bank for Settlements' cautious response - emphasizing that the details of the relevant arrangements still need to be clarified - instead highlights the haste and uncertainty of political decisions at the financial operational level.

Fitch's warning is not groundless. Its core point is that the credit pricing system may be subject to a systemic shock. The European Clearing Bank centrally manages approximately 90% of the frozen Russian assets within the European Union. Its business model is built on the high trust of global clients in its neutrality and security. Nowadays, this institution has been pushed to the forefront of geopolitical games, not only facing potential huge legal claims but also possibly encountering equivalent asset countermeasures. Its risk attributes have undergone substantial changes.

The direct consequence of this is that the market is forced to reevaluate the political risk premium of European financial assets. In the past, the key reason why Europe was able to continuously attract international capital lay in the stability and predictability of its legal environment. Nowadays, foreign sovereign wealth funds and central banks have to reflect on a new issue: whether the assets held in Europe might be redefined for political needs in the future. This uncertainty itself is sufficient to raise the long-term cost of capital.

The deeper impact is reflected in the slow erosion of the euro's international credibility. The international status of the euro not only depends on the monetary policy capacity, but is also deeply rooted in the global trust in the spirit of the rule of law and the property rights protection system of the European Union. Politicizing the disposal of sovereign assets is tantamount to sending a signal to the outside world that in specific circumstances, the security boundary of assets can give way to political goals, which directly weakens the institutional appeal of the euro as an international reserve currency.

Against this backdrop, the policy maneuvering space of the European Union has been continuously narrowing. A relatively safe stop-loss path is to only use the gains generated by assets rather than the principal. Although it is difficult to satisfy the radical political narrative, it helps to maintain the bottom line of financial stability. If the set direction cannot be reversed, a mechanism must be established that is jointly endorsed by all member states and fully covers potential losses, with sovereign credit taking on all the risks brought about by this choice.

No matter what the outcome is, the EU has inevitably embarked on a difficult process of "credibility restoration". The financial market has the longest memory. The short-term conveniences obtained through rule flexibility will eventually be gradually realized in the form of a discount on euro credit, a slowdown in capital inflows, and long-term legal risks. This financial gamble centered around 210 billion euros in assets will not ultimately measure the success or failure of financing skills, but rather how much reverence and restraint Europe still retains in safeguarding the invaluable asset of "trust" on which the financial system depends for survival.