The Fitch ratings agency warned that an EU plan to seize Russia’s frozen assets would expose Euroclear to significant legal and financial risks and downgraded the European depository with a negative watch outlook on December 17.

The European Council (EUCO) is due to meet on December 18-19 to vote on the Reparation Loan scheme to raise a €210bn loan for Ukraine leveraging Russia’s frozen assets in Europe. EUCO is a key European Union institution that defines the EU's overall political direction and priorities but does not pass laws.

The scheme invites a blizzard of legal suits by Russia and could cause a massive outfight of funds from Europe as well as undermining the value of the euro that could undermine the stability of the European financial system. Fitch placed Euroclear’s long-term issuer default rating of AA on negative watch.

Fitch said it, "will seek to resolve the reparations issue once it has sufficient clarity on the political decision-making process and the format, if any, of reparations payments".

A decision on the plan is expected at the European Council summit on December 18 and 19, though any agreement would still require implementation by the EU and individual member states.

The ratings agency cautioned that inadequate legal and liquidity safeguards could lead to maturity mismatches on Euroclear’s balance sheet if liabilities to the Central Bank of Russia fall due. The risk of litigation could also rise significantly if not properly mitigated by legal protections embedded in the reparation loan structure.

The proposal, backed by the European Commission, would involve using income generated from Russia’s immobilised assets — estimated at more than €200bn — mostly held by Euroclear in Belgium.

Tensions are high ahead of the vote. Seven countries have already come out to say they will vote against the plan, led by Belgium that could find itself on the hook to repay the entire loan should inevitable Russian litigation prove successful.

On December 16, German Chancellor Friedrich Merz said there was “no clear understanding” on whether EU leaders would reach agreement during the upcoming summit, estimating the likelihood at only “50%”.

Kaja Kallas, High Representative of the Union for Foreign Affairs and Security Policy, acknowledged pressure on Belgium, where Euroclear is based, to act on the assets. “The complexity of decision-making in the EU is explained by the fact that it has 27 member states,” she said, according to Euractiv.

Seven EU member states — including Belgium, Hungary, Slovakia, Italy, Bulgaria, Malta, and the Czech Republic — are now opposed to outright seizure of the Bank of Russia’s assets, reflecting deep divisions within the bloc over the legal and political risks of the initiative. The International Monetary Fund (IMF) and the European Central Bank (ECB) have also warned the scheme is inadvisable due to the risks.

"Using Russian assets will scare away investors in Europe," said Kirill Dmitriev, Chief Executive of the Russian Direct Investment Fund, who has been instrumental in thrashing out the 27-point peace plan (27PPP) with US partners that could be killed off if the Reparation Loan vote goes through. Dmitriev warned that such a move could undermine confidence in the region's financial stability.