The G7 group of countries announced on Thursday a plan to use frozen Russian assets to finance a $50 billion loan to Ukraine, as Kiev continues its desperate campaign to stop its larger neighbor’s forces from advancing further. , 28 months after the start of the Moscow war.
The announcement came as leaders of the group, which consists of the United States, United Kingdom, Germany, Italy, Canada, Japan, France and the European Union, met at an annual summit held in Puglia (Apulia), Italy.
Ukrainian President Volodymr Zelenskyy, who attended the summit, hailed the move as “a vital step in providing sustainable support to Ukraine to win this war”.
But just hours after that announcement, Russian Foreign Ministry spokeswoman Maria Zakharova promised there would be “extremely painful” retaliatory measures.
Here’s what we know about the frozen assets, how the loan is expected to work, and what the risks could be for Kiev and its Western allies:
What are frozen assets?
Many Western nations have frozen Russian Central Bank assets on their territory following Russia’s invasion of Ukraine in 2022. These assets total around $300 billion. These frozen assets generate about $3 billion annually in interest earnings, and the US has long pushed for this money to be used to support Ukraine.
The majority of assets are owned and managed in the European Union.
EU officials say the interest generated is not contractually owed to Moscow and therefore represents windfalls for holding countries. Some have pushed for Russian assets frozen in the West to be handed over to Ukraine – but this is controversial and will likely require authorization from the courts and could represent a violation of international law. Frozen assets are generally seen as belonging to the owner of those assets – not the country where they are geographically located.
Where are Russian assets frozen?
Here’s a breakdown of the majority of Russian assets abroad that were originally frozen in 2021, according to data from the countries’ central banks:
- France ($71 billion)
- Japan ($58 billion)
- Germany ($55 billion)
- USA ($38 billion)
- United Kingdom ($26 billion)
- Austria ($17 billion)
- Canada ($16 billion)
How will the assets be used?
The details are still being discussed, but the basic idea is this: one of the G7 entities – the EU or the US, for example – will take out a $50 billion loan on international markets and grant it to Ukraine in advance.
Then, the interest on that loan will be financed by the profit generated by the confiscated Russian assets.
Ukraine is expected to use the money to buy weapons, but also to rebuild. A February World Bank report estimated that reconstruction costs for the war-torn country would amount to $486 billion over the next 10 years.
When will Ukraine get this loan?
The funds are expected to reach Kyiv by the end of the year. This means it may not have an immediate effect on Ukraine’s capabilities in the ongoing war.
But the loan was always designed as a long-term plan. Some experts say US President Joe Biden pushed for it, while also sealing a new 10-year security plan to train Ukraine’s military, at a politically volatile time in the United States. Former President Donald Trump, who is ahead of Biden in the key battleground states for their new confrontation in November, opposed US funding for Ukraine.
In his first term, Trump withdrew the US from the main global commitments made by his predecessor, Barack Obama – including the Paris pact on climate change and the nuclear agreement with Iran.
Are there risks in the financing plan?
Yes. If Russia regains control over its assets, or if they are unfrozen as part of peace negotiations, the G7 countries will have to find other ways to repay the loan. If the frozen Russian assets fail to generate the income needed to match the interest on the loan – due to market fluctuations – the G7 countries will again have to find alternative ways to finance the repayment of the loan.
European Commission chief Ursala von der Leyen told reporters that all G7 countries would contribute to the loan, but details were unclear.
Sanctions on Russian assets in Europe require a vote of approval from the European Union every year. In theory, a single veto vote from, for example, Hungary – an EU member widely seen as soft on Russian President Vladimir Putin – could sabotage loan plans to Ukraine. Hungary blocked a portion of EU aid to Ukraine earlier this year.
Russia could also react to the G7 plan by doing the same – using Western assets in Russia that it froze during the war in Ukraine to compensate for the loss of revenue from its frozen assets in the West.
Although Russia does not have access to many Western central bank assets, it has said it has assets from Western companies that operated in the country before the war. Russia claims these assets are worth approximately the same as the $300 billion in Russian assets frozen in the West.
This story originally appeared on Aljazeera.com read the full story
