Western Efforts to Support Ukraine's Defense Against Russian Aggression
With Russian financial assets frozen in Europe, funds are set to support Ukraine in its battle against Moscow's troops. The West aims to amplify this support from a trickle to a deluge, bolstering Kyiv's defense efforts.
Money from Russian financial assets frozen in Europe will soon be sent to Ukraine, helping Kyiv as it faces challenges from Moscow's troops. The West is now working on increasing this financial support.
Finance ministers from the Group of Seven advanced economies are meeting to discuss how to utilize around €260 billion ($282 billion) of Russia's foreign currency reserves that were frozen by Western countries following the invasion of Ukraine in February 2022.
The G7 meeting in Italy follows Russia's recent attack in Ukraine's Kharkiv region. Western leaders are facing pressure to provide military aid to Ukraine as the attacks escalate.
During a speech in Frankfurt, Germany, US Treasury Secretary Janet Yellen emphasized the importance of finding a solution to release Russian assets for the benefit of Ukraine. It is crucial to act quickly and collectively in this matter.
One proposal that seems to have strong support from both US and EU officials is to provide Ukraine with a loan of up to $50 billion. This loan would be secured using the future profits from Russian assets held in the European Union.
Treasury Secretary Yellen explained in an interview with Sky News that this plan would essentially advance the interest proceeds from these assets to Ukraine through a loan. She emphasized the importance of being able to gather substantial resources to assist Ukraine, as the country has significant needs.
G7 finance ministers aim to reach a consensus on a plan that can be finalized during a summit in Italy next month, with President Joe Biden and other leaders in attendance.
The plan does not involve directly seizing assets. The EU is concerned that this action could lead other countries to withdraw their assets from the bloc. Currently, a significant portion of frozen Russian funds are located in Europe, and the euro is the second most widely used currency globally after the US dollar.
Lee Buccheit, a veteran sovereign debt expert and honorary professor at the University of Edinburgh Law School, described the proposal as a stepping stone towards a complete seizure. He made this statement in an interview with CNN.
Could the amount potentially increase from $3 billion to $50 billion?
Around €210 billion ($228 billion) of Russia's assets are held in the EU, with a majority at Euroclear, a financial institution based in Belgium that safeguards assets for banks, exchanges, and investors.
On Tuesday, the EU officially approved an agreement after several months of talks. This agreement allows Euroclear to utilize the profits earned from reinvesting the cash generated by these assets, like coupon payments on bonds. Due to Western sanctions, Russia cannot receive coupon payments and maturing assets.
Ukrainian soldiers from the 126th Separate Territorial Defence Brigade aim and fire a D-30 howitzer at Russian troops in the Kherson region of Ukraine on March 12, 2024 amidst Russia's attack.
Ukrainian servicemen of the 126th Separate Territorial Defence Brigade fire a D-30 howitzer towards Russian troops at a position in a front line, amid Russia's attack on Ukraine, in Kherson region, Ukraine March 12, 2024. Radio Free Europe/Radio Liberty/Serhii Nuzhnenko via REUTERS
Serhii Nuzhnenko/Radio Free Europe/Radio Liberty/Reuters
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EU leaders have approved a plan to use frozen Russian assets to support Ukraine. As part of the agreement, between €2.5 and €3 billion ($2.7-3.3 billion) of these funds will be sent to Kyiv each year. The first payment is scheduled for July, with 90% of the amount allocated for purchasing arms and military equipment.
The split of funds will be evaluated annually beginning in January 2025. There will be the opportunity to adjust spending to focus on rebuilding Ukraine's economy as its requirements evolve.
European Commissioner for Trade Valdis Dombrovskis stated on Tuesday that the EU has decided on a path that is both legally sound and adaptable. This will allow support to be tailored to Ukraine's most urgent needs.
The proposal being discussed by the G7 could provide a larger lump sum of funding right away, unlike the gradual funding plan from the EU.
According to Reuters, Yellen mentioned on Thursday that G7 ministers have talked about a $50 billion figure for the collateralized loan, but there is still no final agreement on the loan amount.
Could a bigger check be on the table?
In addition to taking control of the assets or providing Kyiv with a loan supported by the interest they generate, there is another possibility that the West could explore - known as a reparations loan.
Under this plan, Ukraine would borrow money from a group of allies, which includes G7 members. As collateral, Ukraine would use its claim for reparations from Russia. This would allow Kyiv to access a larger sum of money compared to relying on future or current profits from Russian assets.
According to Buchheit, a debt expert, Ukraine's claim for reparations against Russia is legally solid. By using this claim as collateral, Ukraine would essentially be converting a portion of it into funds to secure the loan from the G7.
If Russia does not pay reparations, the G7 can use frozen assets to get back the money they loaned to Ukraine. This way, Russia will have to contribute to the huge cost of rebuilding Ukraine, estimated by the World Bank to be $486 billion in the next ten years.
"Putin will never pay reparations unless there is a regime change in Russia," Buccheit explained. "The $300 billion is likely the only reparations payment Ukraine will ever receive from Russia for the harm caused."
Editor's P/S:
The ongoing conflict in Ukraine has rightfully garnered international attention and support. The recent decision by the West to utilize frozen Russian financial assets to aid Ukraine is a commendable step towards providing much-needed financial assistance to the war-torn nation. The proposal to provide Ukraine with a loan of up to $50 billion, secured using future profits from Russian assets, is a pragmatic approach that allows for immediate financial support while ensuring that the assets are not permanently seized.
The possibility of a reparations loan, which would allow Ukraine to borrow money from G7 members using its claim for reparations from Russia as collateral, is also an intriguing concept. While it is unlikely that Russia will voluntarily pay reparations, this plan would create a mechanism for Ukraine to recover a portion of the immense costs of rebuilding. The international community must continue to explore innovative and effective ways to support Ukraine and hold Russia accountable for its aggression.
