Helping Ukraine with frozen Russian assets, an idea gaining ground at the G7

(Paris) What if the West made Russia pay for aid to Ukraine? The idea is attractive but complex, and is high on the agenda for the G7 leaders’ summit in Italy, who are aiming for a deal that their finance ministers laid the groundwork for in May.

The G7 has made “very good” progress toward an agreement on using frozen Russian assets to help Ukraine and leaders “hope” to reach an agreement as early as Thursday, the White House assured in the morning.

On the negotiating table is the United States’ proposal to grant Ukraine a megaloan of $50 billion guaranteed by future profits generated by the frozen €300 billion of Russia’s central bank assets. by the G7 and Europe.

According to Paris, an agreement in principle has already been concluded “on the disbursement of 50 billion” dollars “before the end of 2024”.

This loan “is essentially American”, but “can be supplemented with European money or national contributions”, the French presidency indicated on Wednesday evening.

After advocating a pure and simple confiscation of Russian assets, the United States has now aligned itself with the European position of using only the interest generated by the frozen assets.

The European Union and G7 countries have frozen some €300 billion in assets of Russia’s central bank, according to the EU. They also seized private assets of people linked to Russian power.  

According to the Institute of Legislative Ideas, a Ukrainian think tank that claims to interview official sources, $397 billion is tied up.

The World Bank estimates the cost of rebuilding Ukraine at more than $486 billion.

Especially in the European Union: around 185 billion euros were frozen by Euroclear, an international money depository established in Belgium.

This gives preponderant weight to Europe over the use of Russian assets.

The rest is mainly shared between the United States, Japan, the United Kingdom, Austria and Switzerland.

Concerning a confiscation of Russian assets themselves, mentioned by the United States, the West came up against “immunity from execution”, a legal principle which prevents the seizure of the property of one State by another.

Keen to avoid violating international law, EU countries adopted an agreement in early May to seize revenues from frozen Russian assets alone in order to arm Ukraine, a windfall worth between 2.5 and 3 billion euros per year.

In the process, the big financiers of the G7 meeting in Stresa at the end of May agreed on the principle of using future interests in Russian assets, without however formalizing an agreement.  

Many questions persist regarding a G7 loan guaranteed by the interests of Russian assets, such as the sharing of risk between the United States and Europe, the unknown evolution of interest rates or even the fact of knowing who will issue the debt.

Among the questions to be clarified remain the guarantees of this loan and the distribution of the burden if “Russian assets are unfrozen” or if their “income no longer produces what is necessary to finance the loan”, explained the Élysée.

And Japan’s hands are tied by its constitution which prohibits it from financing the military spending of third countries, which would limit a loan to Kyiv’s budgetary needs only.

Another obstacle is that EU sanctions against Russia, including the immobilization of Russian assets, must be renewed every six months by a unanimous vote of the Council.

A possible veto by nationalist Prime Minister Viktor Orban, who remains close to the Kremlin, could therefore block the mechanism, especially since Hungary will assume the presidency of the European Union on July 1.

And what would happen if the assets were released in the event of a peace agreement?

G7 finance ministers reaffirmed that Moscow’s assets “will remain tied up until Russia pays for the damage it has caused to Ukraine.” Hence the prospect that Russian assets could generate profits for a long time to come.

Some also worry about an impact on investments from third countries, such as China, which could reduce their assets in Western countries for fear of them being seized.  

And Russia is threatening retaliation against Western private interests.  Vladimir Putin thus signed a decree at the end of May authorizing the confiscation in Russia of assets belonging to the United States or to people “associated” with it.