Eurozone finance ministers on Wednesday (May 5) gave their political backing to a G7 plan to use windfall profits from Russian assets to lend to Ukraine, and are ready to discuss the plan after a G7 summit planned for late June.
“Ministers' discussions indicated that we appreciate the constructive work being undertaken with our G7 partners in this regard and fully support its continuation,” Eurogroup President Pascal Donohue, who chairs a meeting of euro zone finance ministers, said in a statement.
Wednesday's online consultations were convened to consider options on how to front-load financial support for Ukraine by providing loans based on extraordinary profits from Russia's central bank's fixed assets.
Together, G7 nations have locked up about $280 billion in assets, most of which is held at Belgium-based clearing house Euroclear.
The new support comes after G7 finance ministers last month signalled an openness to plans to pull up to $50 billion from assets to help with Ukraine's war effort.
After the meeting, Finance Minister Donohoe said: “Ministers will consider when they meet in June whether further consultations are needed after the G7 summit in Puglia.”
Leaders of the G7 countries (the United States, Canada, Japan, Britain, France, Germany and Italy) are due to meet in Italy from June 13-15 to consider different versions of the proposal.
According to the G7 plan, profits from Russian fixed assets held in the EU could be used to pay interest and also repay the principal of future loans issued to Ukraine by the United States, or jointly by the United States and other G7 countries, or by the EU from its own budgets.
EU member states agreed earlier this year that the use of the windfall profits generated by the frozen capital is legally legitimate because, in contrast to the capital of the assets, the profits do not legally belong to Russia.
The annual profits will be put into a special fund for Ukrainian weapons and the country's reconstruction.
Under the plan, 90 percent of the funds would first be allocated to the European Peace Facility (EPF), the European Union's mechanism for reimbursing member states for the cost of weapons shipped to Kiev, and then to the newly created Ukraine Aid Fund (UAF).
The remaining 10 percent will be transferred to the EU budget and used to strengthen the capabilities of Ukraine's defense industry.
The plan also allows for the option to adjust the funding objectives if Ukraine's needs shift from defense to reconstruction.
Going ahead with the plan would require risk-sharing between the EU and the United States, as EU countries and the European Central Bank are wary of potential risks to the EU's single currency, people familiar with the discussions said.
A more ambitious US proposal
Meanwhile, Washington is pushing a more ambitious proposal in which countries would agree to use their profits to provide huge loans to Ukraine as soon as possible, rather than settling for a few billion euros a year over the long term.
US Treasury Secretary Janet Yellen The New York Times It said last week that the loan under consideration would be about $50 billion, backed by profits and interest income.
EU officials said that for the U.S.-led plan to work, the EU would need to give guarantees to lending institutions that it would use any windfall profits from frozen Russian assets to repay them.
However, this plan would depend heavily on Russia’s frozen assets remaining frozen in the long term until Russia agrees to pay reparations.
To achieve this, the EU will also need to make changes to its sanctions regime regarding frozen assets against Russia to eliminate uncertainty in decision-making.
The coalition currently has to renew its sanctions regime against Russia, which includes immobilizing central bank assets, every six months.
But any extension of such sanctions requires unanimous approval by the EU's 27 member states, and Hungary is in a precarious position having stood as a roadblock to a series of EU decisions on Ukraine over the past year.
One alternative, according to a discussion paper for Eurogroup ministers, is for G7 countries to make use of Russian assets anchored within their jurisdictions.
In this case, the windfall generated from assets locked in the EU would not be used to repay loans from the US or other G7 countries, but would be used to repay the principal and interest on loans to Ukraine supported by the EU budget.
The hurdle for such an option is that the EU27 would need to take a unanimous decision to use the bloc's budget as a guarantee for the post-2025 period.
Another option under discussion would be to establish a separate sanctions regime for the assets of the Russian Central Bank, to avoid the need for six-monthly renewal of the current sanctions regime.
[Edited by Zoran Radosavljevic]
