The Risks of the EU Commission's 'Kamikaze' Sanctions Against Russia: Impact on the European Financial System
by Marco Saba, Italian Center for Monetary Studies, November 5, 2025
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Summary
This paper examines the risks stemming from the EU Commission's "kamikaze" sanctions against Russia, defined as reckless and potentially self-destructive measures that aim to economically isolate Moscow but ultimately undermine European financial stability. Using data up to 2025, we analyze the impact on Central Securities Depositories (CSDs) such as Euroclear, the consequences of Russian lawsuits, and the macroeconomic effects on the EU. The sanctions, now in their 19th package, have generated temporary profits from frozen assets but expose the system to losses, litigation, and global fragmentation. We propose alternatives, such as a review of sanctions policies and the use of distributed ledger technology (DLT) to mitigate systemic risks. Estimates indicate potential costs to the EU of over €100 billion in indirect fallout.
JEL: F51; G01; G28; P45.
Keywords: EU-Russia Sanctions, Frozen Assets, Euroclear and Clearstream, Systemic Risks, CSD, Great Taking, Rehypothecation, CSDR and BRRD, DLT Tokenization, Quantitative Balancing, Financial Geopolitics, International Litigation, Bail-in Resolution, Security Entitlement.
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1. Introduction
The EU Commission's sanctions against Russia, launched in 2022 in response to the invasion of Ukraine, have been described by some analysts as "kamikaze" for their aggressive and ill-calculated approach, sacrificing short-term European economic interests for geopolitical objectives. By 2025, with the 19th package adopted on October 23, these measures targeting energy, banks, and cryptocurrencies have intensified pressure on Moscow, but have also generated systemic risks for the EU, including legal disputes and financial vulnerabilities. This paper, linked to my previous work on Collateral Seigniorage, explores how these "unwise" choices could threaten the stability of European CSDs and the overall economy, focusing on frozen assets and Russian retaliation.
2. EU Sanctions: An Updated Overview to 2025
Since 2022, the EU has imposed 19 sanctions packages, which include bans on energy imports, financial restrictions, and the targeting of Russian and third-party entities (e.g., Chinese banks). In 2025, the focus is on strategic sectors: the 19th package targets Russian energy, third-party banks, and crypto providers, aiming to reduce Moscow's revenues by 5–10% annually. However, analyses such as those by the UK Parliament highlight that these measures have increased energy costs for the EU, contributing to a decline in European GDP of 0.5–1% in 2025. Critics call them "suicidal" because they foster global financial fragmentation, pushing non-Western countries towards alternatives such as the Russian NSD system.
3. Risks for CSDs: The Case of Euroclear and Clearstream
CSDs such as Euroclear and Clearstream hold the majority of frozen Russian assets (~€300 billion in total, of which €185-194 billion is held by Euroclear). These sanctions have generated interest income (€4.4 billion in 2024 for Euroclear), but also direct costs (€82 million) and business losses (€25 million) in 2025. Russian lawsuits pose a key risk: in September 2025, a Moscow court ordered Euroclear to pay $105.4 million in damages; in October, another order for frozen assets. If they escalate, they could erode Euroclear's balance sheet (€227 billion as of September 2025, with €193 billion tied to sanctioned assets), potentially causing systemic instability.
EU proposals to use these assets for loans to Ukraine (€140 billion) have been delayed due to Belgian concerns about legal risks and Russian retaliation, which could include expropriation of EU assets in Russia. Clearstream faces similar, but lesser, risks, given its smaller exposure. In an extreme scenario, a fallout could evoke "The Great Sting," with losses for original investors due to amplified rehypothecation.
Escalating Tensions: What Would Happen?
If escalated, "kamikaze" sanctions could accelerate a vicious cycle. If the EU proceeds with the use or confiscation of frozen assets (e.g., to finance loans to Ukraine without full compensation), Russia could intensify legal and operational retaliation. For example, the Russian Central Bank could file multi-billion dollar lawsuits in Russian courts, ordering the seizure of Western assets in Russia or seeking damages for "illegal expropriation," as already seen in smaller cases. This could include cyberattacks on CSD infrastructure (e.g., disruption of settlement systems), amplifying fail rates and operating costs. Furthermore, third countries (e.g., China) could withdraw assets from European CSDs for fear of secondary sanctions, causing liquidity outflows estimated at tens of billions. Escalation could also fragment the global market, with Russia promoting alternatives such as its National Settlement Depository (NSD), reducing the role of Euroclear and Clearstream in international clearing.
CSD Failure: Hypothetical Scenario
Although unlikely given the "too big to fail" nature of CSDs (protected by the CSDR and BRRD), a failure of Euroclear or Clearstream could result from a catastrophic escalation: cumulative losses from Russian lawsuits (>€10-20 billion), combined with secondary sanctions and cyber disruption. In such a scenario, the CSD would enter resolution: asset freeze, creditor bail-in, and state intervention (e.g., Belgium for Euroclear). Settlement fails could exceed 10% of daily volume (~€1 trillion), causing operational and reputational losses. Fitch Ratings notes that operational risks (including system failures) are key for Euroclear, and a rating downgrade could accelerate the collapse. Clearstream, part of Deutsche Börse, could suffer a domino effect, impacting EU equity markets.
Consequences for Original Title Owners
For the original owners (retail investors, pension funds), the consequences would be devastating, echoing David Webb's "Great Taking" concept: in a CSD failure, rehypothecated securities (reused as collateral) would be seized by secured creditors under the EU Financial Collateral Directive and UCC Article 8. Security entitlements—contractual rights to dividends and coupons, not legal ownership—would evaporate, leaving investors as unsecured creditors last in line for recovery. Fungible assets in custody chains could be lost in a "ripple effect," with losses estimated in the hundreds of billions for EU pension funds. This would amplify inequalities, reduce trust in the financial system, and push for decentralized alternatives such as blockchain tokenization.
4. Economic Consequences for the EU
The "kamikaze" sanctions have amplified economic vulnerabilities: rising energy costs, declining exports to Russia, and financial fragmentation. Analyses indicate a negative impact on EU GDP of 0.5-1%, with sectors such as energy and finance most affected. Russia has responded with countermeasures, including bans on cryptocurrencies and third-party banks, which could cost the EU billions in lost opportunities. Furthermore, the delay in using frozen assets has exposed the EU to criticism for ineffectiveness, while Russia is exploiting domestic rulings for compensation.
5. Policy Implications
To mitigate these risks:
1. Sanctions Review: Adopt a more selective approach, avoiding measures that harm the EU (e.g. focus on individuals rather than energy sectors).
2. CSD Protection: Strengthen CSDR with dedicated resolution funds for sanctioned assets and reuse limits (100% cap).
3. Targeted Taxation: Apply a 15% tax on profits from frozen assets, as in Collateral Seigniorage, to finance aid without legal risk.
4. Transition to DLT: Tokenize assets for direct ownership, reducing reliance on geopolitically vulnerable CSDs.
6. Conclusion
The EU Commission's "kamikaze" sanctions, while aimed at weakening Russia, pose a systemic risk to the European economy, exposing CSDs like Euroclear to litigation and instability. As with Quantitative Balancing, it is essential to bring these hidden rents back to the public, through democratic discussion to avoid "economic suicide." Further research could quantify the net costs to the EU.
References
• European Council (2025). 19th package of sanctions against Russia.
• Euroclear (2025). Q3 2025 Results.
• Reuters (2025). Russian court recovers $105.4 million from Euroclear.
• BBC (2025). EU fails to back frozen Russian cash loan.
• UK Parliament (2025). Sanctions against Russia: What has changed in 2025?
• Saba, M. (2025). Collateral Seigniorage: The "Grand Prize" Hidden in the Reuse of Clients' Proprietary Securities.
• Saba, M. (2025). Quantitative Balancing: A Nash Equilibrium Framework for Transparent Bank Accounting and Financial Stability.
• Webb, D. R, (2024). The Great Taking.
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