Euro-area finance ministers gave political backing Wednesday to an effort by Group of Seven nations to provide loans to Ukraine using windfall profits generated from immobilized Russian central bank assets.
“The discussion among ministers showed appreciation for the constructive engagement with G-7 partners in this regard and full support for it to continue,” Eurogroup president Paschal Donohoe said in a statement following a video conference meeting of finance ministers.
The meeting was called to explore options on how to front-load financial aid to Ukraine by providing loans based on the profits derived from immobilized Russian central bank assets. The discussion came after G-7 finance ministers last month pushed ahead with the plan, aimed at harnessing as much as $50 billion to help Ukraine’s war effort. They agreed to present options to G-7 leaders ahead of next week’s summit in Italy.
G-7 countries have immobilized about $280 billion of Russian central bank assets in response to President Vladimir Putin’s February 2022 invasion of Ukraine, with the majority held in Europe through the Belgium-based clearing house Euroclear.
Euro-area ministers were positive about the process but emphasized the need of risk-sharing between the EU and the US, according to people familiar with the discussion.
During Wednesday’s meeting, European Central Bank President Christine Lagarde signaled that using future interest revenues derived from the immobilized assets doesn’t represent a risk to the euro, the people added, speaking on condition of anonymity because the discussions are private.
One option being considered is a US-led proposal where the US — and possibly other G-7 countries — would provide a loan to Ukraine that would be repaid by the windfall profits generated by the immobilized assets in the EU, in addition to other G-7 partners’ contributions.
But the plan relies on receiving assurances from the EU that Russia’s assets would remain frozen until Russia has agreed to pay reparations and that the windfall profits would be available for the repayment of the loan.
Currently, the EU needs to renew its Russia sanctions every six months, including the immobilization of its central bank assets, a step that requires unanimous approval by the bloc’s 27 member states. Hungarian Prime Minister Viktor Orban has become a hurdle in clearing recent rounds of sanctions against Moscow, as well as in approving financial and military aid for Kyiv.
One alternative under consideration is that each G-7 country or partner would use the immobilized Russian assets in their jurisdictions.
“This would mean rather than using windfall profits generated on assets immobilized in the EU to repay loans from the United States (or other G-7 members), those windfall profits would be used to finance the principal and interest for a loan to Ukraine supported by the EU budget,” said a document prepared for the Eurogroup discussion.
But this option would be complex because the 27 member states would need to unanimously agree to use the EU budget as a guarantee beyond 2025.
Another option considered by the Europeans was to circumvent the obligation of the six-month renewal of the sanctions by “enacting a specific regime concerning Russian Central bank assets framing the regular review clause with objective criteria,” the document said.
These objective criteria would be the end of Russian aggression, a peace agreement and an agreement on war reparations, but that change would also require unanimity.