The West's most expensive game of chicken

Posted on: 19 December 2025

At 4am last Friday in Brussels, after marathon negotiations, Belgian Prime Minister Bart De Wever declared to journalists: "Had we left divided today, Europe would have walked away from geopolitical relevance."

The statement sounded like victory. But what exactly had the European Union achieved?

A €90 billion loan to Ukraine, financed by borrowing on capital markets and guaranteed by EU budgets. Not by using the €210 billion in frozen Russian assets that Europe holds, mostly in Euroclear's vaults in Brussels. Those stay untouched, while European taxpayers shoulder the risk.

The City of London has been watching closely. And warning loudly.

When custody becomes a liability

Britain holds approximately £25 billion in frozen Russian assets. A significant sum, though dwarfed by what sits in Belgium. The UK government has signalled willingness to transfer £8 billion to support Ukraine, but only in coordination with European partners.

Here lies the structural problem. The City's financial institutions have been pushing back against any scheme that blurs the line between custody and confiscation. Their concern isn't moral. It's commercial. As one analysis put it: when you start using money you don't legally own to fund a war, who still trusts you to hold their reserves?

This isn't abstract theorising. The market doesn't treat frozen-but-not-seized assets as a neat technicality. It treats it as a precedent. And precedents, once set, apply to everyone who parks money in Western financial centres.

The asymmetry no one wants to discuss

Meanwhile, across the Atlantic, a rather different calculation is taking place.

The Trump administration's 28-point peace plan—drafted by envoy Steve Witkoff alongside Russian counterpart Kirill Dmitriev—contains a revealing clause: $100 billion in frozen Russian assets would be invested in "US-led efforts" to rebuild Ukraine, with Washington taking 50% of the profits.

The detail worth noting: the United States holds roughly 1.5% of global frozen Russian assets—about $5 billion. Europe holds nearly three quarters. Yet the plan envisions Washington controlling how they're deployed.

This isn't a calculation error. It's the difference between treating rules as constraints versus treating them as instruments.

Russia, for its part, has sued Euroclear in Moscow's arbitration court. Not because it expects to win a Russian verdict against a Belgian institution, but because it knows the mere existence of legal proceedings is sufficient to paralyse European decision-making. And indeed it has. Belgium blocked any direct use of the assets precisely due to fear of "legal consequences."

The credibility problem

Thomas Schelling, the game theorist who studied nuclear strategy during the Cold War, identified a principle that seems written for today's Europe: deterrence only works if your adversary believes you'll actually use the weapon you possess.

Europe possesses a €210 billion weapon. And it has just signalled to the world that it won't deploy it as direct collateral because doing so would be "legally and financially risky."

The message reaching Moscow is unambiguous: those funds are a hostage Brussels isn't prepared to execute. Which transforms the hostage into leverage for the party that lost it, not the party holding it.

Britain faces the same dilemma, but with fewer options. Post-Brexit, the UK depends more heavily on the City's reputation as a neutral, predictable financial centre. The European Union can at least fall back on its single market as an economic anchor. Britain's proposition to global capital is increasingly singular: we are safe, we are stable, we follow the rules.

That proposition works beautifully in a world where other major players share the same framework. It becomes a vulnerability when you're competing with actors who treat economics as warfare—punitive tariffs, energy blackmail, arbitrary seizures, "joint investment" schemes that amount to forced redistribution.

The precedent that matters

Historians will recognise the pattern. Geneva, 1930s. The League of Nations confronting Japan's invasion of Manchuria in 1931, then Italy's invasion of Ethiopia in 1935. In both cases: formal condemnations, timid sanctions, no real action.

Why? Because France and Britain—the League's most influential members—feared the economic and diplomatic consequences of genuine intervention. Better to preserve the appearance of the system than risk breaking it by acting.

The result is well documented: every rational actor stopped taking the "rules" seriously. The League became irrelevant long before it was formally dissolved. Not because it lacked tools, but because everyone knew those tools would never be used.

Today's Europe is not the League of Nations, and Putin is not Mussolini. But the structural mechanism is identical: an institution that possesses significant pressure instruments, yet systematically signals reluctance to deploy them, loses credibility precisely to the extent that other actors incorporate this information into their strategies.

Where this analysis might be wrong

Intellectual honesty requires stating the limits.

The thesis of "normative paralysis" would fail if European and British caution attracted massive capital flows from countries fearing American arbitrarines, China, Gulf states, India. In a world where the US seizes Russian assets without ceremony, Europe might become the safe harbour for those seeking predictability. Data over the next 18 months will tell us whether this is happening.

The thesis would also fail if the option to use Russian assets, which the EU has formally reserved, were actually exercised when needed. But experience suggests that those who don't act when conditions are favourable rarely act when they become unfavourable. The option risks remaining just that: an intention never translated into action.

Britain's particular bind

For the UK specifically, the stakes are compounded. The City isn't just an industry, it's a substantial portion of the tax base and a core element of post-Brexit economic identity. Anything that damages London's reputation as a jurisdiction where property rights are sacred and legal processes predictable strikes at Britain's competitive proposition.

Yet this same caution positions Britain awkwardly in a world where geopolitical signalling matters. Trump has called European leaders "weak." His administration's National Security Strategy accuses Europe of being "trapped in political crisis" and suffering from "lack of self-confidence." These are brutal judgments, but they reflect a perception that's consolidating: Europe and Britain by extension, is a reliable partner for commerce, but not a serious actor when it comes to projecting power.

The irony is sharp. Britain left the European Union partly to escape regulatory constraints and reclaim sovereign flexibility. Yet on the question of Russian assets, the UK finds itself in precisely the same bind as Brussels: caught between the instinct to act and the fear of consequences.

The question that remains

There's a scene in "The Godfather" where Michael Corleone explains the difference between his way of operating and that of the corrupt senators he must deal with. They think they can play by the rules of normal politics. Michael knows the real rules are different.

Europe today, Britain included, resembles those senators. Convinced that adherence to principles is a strength, when other players at the table read it as a signal of what you can get away with in their dealings.

The question isn't whether Britain and Europe were right not to directly deploy Russian assets. Legally, the concerns have foundation. Financially, protecting London and Euroclear has its logic.

The question is different: in a world where the United States, Russia and China systematically use economics as an instrument of coercion, how long can Western powers afford to be the only ones still playing by the post-war rulebook?

The answer, I suspect, will become clear when it's too late to change it.