The G7 summit opened with leaders agreeing to design a $500 billion loan to help Ukraine in its struggle for survival. This loan will use the interest earned from frozen Russian central bank assets as collateral.
The G7 leaders began their two-day summit in Puglia on Thursday. This marks the seventh time they have gathered in Italy, hosted by Italian Prime Minister Giorgia Meloni. Leaders from the seven member countries, the EU Council, and the EU Commission have come together to focus on issues such as the Ukraine war, conflicts in the Middle East, trade imbalances with China, migration, threats posed by artificial intelligence, and development challenges in Africa.
EU diplomats stated that the leaders have reached an agreement in principle to provide Ukraine with a $500 billion loan using the interest from Russian sovereign assets frozen after Moscow’s 2022 invasion of a neighboring country. While the details of the agreement are still being discussed, the funds may reach Kyiv by the end of this year.
Prior to the official announcement of the summit, a French official confirmed the agreement to the Associated Press.
According to Reuters, a senior EU official confirmed that an outline agreement has been reached.
“I believe it’s done,” the official said. “Should be no problem.”
A source familiar with the negotiations indicated that the purpose of the agreement is to ensure continuity regardless of changes in leadership within the G7 member countries.
The plan entails providing the majority of the funds in the form of U.S. government loans, backed by the “windfall” of around $300 billion from frozen Russian assets, most of which are held in EU countries.
A French official mentioned that while the loan is primarily guaranteed by the U.S., European funds or donations from other countries could also be used to “top it up.”
This is challenging.
For over a year, officials from multiple countries have debated the legality of seizing these funds and directing them to Ukraine.
When Moscow invaded Ukraine in 2022, the U.S. and its allies immediately froze all Russian central bank assets they could access – essentially funds held in banks outside of Russia.
While these assets are frozen and cannot be accessed by Moscow, they still belong to Russia.
While governments can typically freeze assets or funds effortlessly, converting them into confiscated assets available for the benefit of Ukraine requires additional judicial procedures, including legal grounds and court rulings.
Therefore, the EU has left aside the profits from frozen assets. This makes the money more readily usable.
Additionally, the U.S. passed the REPO Act earlier this year. The Act permits the Biden administration to confiscate $5 billion of Russian state-owned assets in the U.S. and redirect them to Kyiv. This arrangement is still under discussion.
Specific details will be addressed by technical experts.
However, U.S. National Security Advisor Jake Sullivan stated on Wednesday that the U.S. aims to “immediately provide the necessary resources to Ukraine to meet its energy and other needs, enabling it to withstand continued Russian aggression.”
Hence, another objective of the G7 leaders is to swiftly deliver the funds to Ukraine.
The French official mentioned that the details could be “quickly put together, and anyway, the $500 billion will be paid by the end of 2024.”
Apart from the costs of war, the other needs are substantial. A report released by the World Bank in February estimated that Ukraine’s reconstruction and recovery costs over the next ten years could amount to $486 billion.
As the U.S. Congress has been delaying approval of additional military aid to Ukraine, utilizing frozen Russian assets to help Ukraine has emerged as a response.
Former U.S. Ambassador to Ukraine John Herbst, speaking at an event previewing the G7 summit at the Atlantic Council, stated, “The U.S. funds are not entirely reliable, and that’s another very important reason to go down this route.”
The French official mentioned that if Russia regains control of its frozen assets or if the interest earned from frozen assets is insufficient to repay the loan, “then there will be a problem of burden-sharing.”
The responsibility for burden-sharing is still under discussion, according to the official.
Max Bergmann, Director of the Europe, Russia, and EurAsia Program at the Center for Strategic and International Studies, stated last week that finance ministers in European countries are concerned that “if Ukraine defaults, their countries will be on the hook.”
Italian Prime Minister Meloni, at the start of the summit, informed the guests of the G7 that “there is a lot of work to be done, but I believe that over these two days, we can have discussions that will yield tangible results.”
Apart from Italy, the U.S., and France, the G7 also includes Japan, Germany, the UK, and Canada.
Ukrainian President Zelensky is attending the summit for the second consecutive year, participating in talks on Thursday afternoon and subsequently signing a new long-term security agreement with President Biden.
Sullivan emphasized that Biden’s goal at the G7 summit is to reinforce the idea that if the U.S. aligns closely with its democratic allies, it will serve American interests best.
On Wednesday, the U.S. significantly expanded sanctions against Russia, including targeting Chinese companies selling semiconductors to Russia.
Prior to the G7 summit, Biden announced new restrictions on Chinese companies, apparently aiming to persuade Western allies to demonstrate greater resolve against Beijing’s support for Russia and its industrial overcapacity issues.
Before the summit began, Sullivan stated that China is a major creditor in many heavily indebted countries.
“The G7 Communiqué is not about or focused on any country,” he said, but China needs to play a constructive role in dealing with debt burdens.
Leaders from global regional powerhouses such as India, Brazil, Argentina, Turkey, Algeria, and Kenya were also invited to Puglia.
Although the summit was originally scheduled to last until Saturday, many G7 leaders, including Biden, will depart on Friday evening, meaning the final day will be dedicated to bilateral meetings for the remaining officials and the closing press conference by Meloni.