Why the US wants to show Europe that it still cares about its security

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Good morning. In an interview with the FT, European Commission president Ursula von der Leyen has called for EU budget funds to incentivise joint production of weapons and consolidation of Europe’s defence industry, to respond to “a rougher world”.

Today, our man at the Munich Security Conference previews an event likely to be dominated by the defence of Europe. And the chief executive of Euroclear, the Belgian settlement house in the spotlight because of its role as the largest custodian of immobilised Russian assets, tells Laura her side of the story.

Have a wonderful weekend.

Reassurance

Donald Trump’s latest attack on Nato and fears that Russia could attack an alliance member in the coming years are already casting a shadow over the Munich Security Conference kicking off today, writes Guy Chazan.

Context: During the cold war, the conference used to be a transatlantic love-in, where US and European officials would renew their vows and display a united front in their fight against Soviet communism.

But this year, the future of the transatlantic alliance looks shakier than ever after Trump told a campaign rally he would encourage Russia to do “whatever the hell it wants” with Nato members who fail to spend 2 per cent of their gross domestic product on defence.

US vice-president Kamala Harris and secretary of state Antony Blinken will use Munich to reassure anxious allies that the US is still committed to their security.

Harris’s aides said she would deliver a speech on “the importance of fulfilling the US role of global leadership” before meeting German Chancellor Olaf Scholz and Ukrainian President Volodymyr Zelenskyy, who is attending in person for the first time since the full-scale invasion.

But Trump’s apparent willingness to call into question the alliance’s Article 5 mutual defence clause set off a wave of panic in European capitals that has not yet subsided, and Harris and Blinken will have a difficult time smoothing the Europeans’ ruffled feathers.

Even before Trump’s comments, the mood music for this year’s conference was expected to be subdued, as Russia’s war in Ukraine enters its third year and fighting continues in Gaza.

The circumstances could scarcely be less auspicious: Israel is about to unleash its offensive in Rafah, despite calls for restraint from across the world, Republicans in Congress are blocking further US aid to Ukraine and doubts are increasing about the west’s resolve to support Kyiv and prevent a Russian victory.

It will be all smiles as western leaders recommit themselves to Nato’s collective security. But Trump’s comments have left a bitter aftertaste that not even a few pints of Bavarian Weizenbier can wash away.

Chart du jour: Gloomy outlook

In its quarterly economic forecast, the European Commission downgraded its 2024 growth expectations for the EU and the eurozone, and said inflation was expected to halve from last year’s highs. Find out how your own country is forecast to perform here.

Money piles

The EU sanctions imposed on Russia after it invaded Ukraine in 2022 have dragged an obscure financial institution into the limelight: Euroclear, the world’s largest central securities depository.

Euroclear now has its task cut out for it in managing the assets immobilised under the sanctions, chief executive Lieve Mostrey tells Laura Dubois.

Context: Euroclear processes transactions in the international financial system, handling €37.7tn in assets last year. Some €191bn belonging to Russia’s central bank were frozen on Euroclear’s books by the EU sanctions.

“At the moment when the sanctions were decided, we immediately knew that that was going to be very impactful for ourselves,” Mostrey told the FT in an interview.

The Belgian CEO explained that Euroclear connected emerging markets to international investors. “And that is something that we have done with the Russian market since about 12 years ago,” Mostrey said, adding that Russia then “was very attractive to investors”.

“That means that a lot of international investments in Russia go over the books of Euroclear and vice versa,” Mostrey said.

But the sanctions resulted in an unusual situation for Euroclear, as it was no longer able to pay out cash from maturing securities to its sanctioned Russian clients.

This has been both a blessing and a curse for the Brussels-based organisation. Reinvesting the extra cash from the Russian sanctions yielded interest income of €4.4bn last year.

But Euroclear is already facing dozens of lawsuits over the blocked assets in Russia, which it expects to lose, according to its CEO.

And that’s on top of the political pressure to seize the assets themselves, or at least the resulting profits, in order to help Ukraine.

While Mostrey is against the former — in all its variations — she can live with EU plans to skim off the profits only. “We would understand such a measure,” she said.

What to watch today

1. Munich Security Conference begins.

2. Ukrainian President Volodymyr Zelenskyy travels to France and Germany.

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