The United States and Europe are uniting around a plan to use interest earned on frozen Russian central bank assets to provide Ukraine with a loan for military and economic assistance, potentially providing the country a multibillion-dollar lifeline as Russia’s war effort intensifies. .
Treasury Secretary Janet L. Yellen said in an interview Sunday that several options remained on the table for using $300 billion in stranded Russian assets. But she said the most promising idea was for the Group of Seven countries to give Ukraine a loan that would be backed by profits and interest earned on Russian assets held in Europe.
Finance ministers from the Group of Seven will meet in Italy later this week in hopes of finalizing a plan they can present to heads of state before the group’s leaders meet next month. The urgency to find a way to provide more financial support to Ukraine has grown as the country’s efforts to push back against Russia have shown signs of flagging.
“I think we are seeing considerable interest from all of our partners in a loan structure that would generate windfall profits,” Yellen said on her flight to Germany, where she is holding meetings ahead of the G7 summit. “This would generate a significant initial amount that would help meet the needs we anticipate Ukraine will have both militarily and through reconstruction. »
For months, Western allies have debated how far to go in using Russian central bank assets. The United States believes it would be legal under international law to confiscate the money and give it to Ukraine, but several European countries, including France and Germany, are wary of the legality of such a move. such decision and the precedent it would create.
Although the United States recently passed legislation that would give the Biden administration the power to seize and confiscate Russian assets, the desire to act in unison with Europe has largely ruled out the idea.
This month, European Union countries agreed in principle that they would be willing to use 90% of profits to buy weapons from Ukraine through the European Peace Facility, a structure of the EU intended to finance military aid and its own military missions. The remaining 10 percent would be spent on reconstruction and non-lethal purchases, to satisfy countries like Ireland, Austria, Cyprus and Malta, which are militarily neutral.
Around €190 billion of Russian central bank assets are held by Belgium’s central securities depository, Euroclear. The assets generate around 3 billion euros in interest per year which could be transferred to Ukraine.
However, using interest as the basis for a loan could provide Ukraine with a much larger sum of money – potentially up to $50 billion – upfront. The method of distributing the money still needs to be worked out. The World Bank or another international institution could serve as an intermediary.
It is also unclear how the loan would be repaid if the war ended before the bond matured or if interest rates fell, making the proceeds from the assets insufficient to repay the loan.
These details are expected to be discussed between finance ministers when they meet later this week. They hope to be able to provide additional funds to Ukraine this summer.
Ms Yellen said allocating money to Ukraine was key to showing Russia it could not survive Western support.
“I think Russia is playing a waiting game and I think the United States and our partners are losing the will to support Ukraine over an extended period of time,” Ms. Yellen said. “Showing that we have the means to translate the benefits from frozen assets into a stream of support for Ukraine is, I think, an important way of demonstrating that we are not about to retreat – we are going to be in able to help “Ukraine.”
