Germany Joins US in Groundbreaking Plan to Fund Ukraine with Frozen Russian Assets

Germany Agrees to US Proposal to Help Ukraine with Frozen Russian Assets

May 20, 2024 - 23:50
May 20, 2024 - 23:51
Germany Joins US in Groundbreaking Plan to Fund Ukraine with Frozen Russian Assets
Germany Joins US in Groundbreaking Plan to Fund Ukraine with Frozen Russian Assets

Germany has decided to support a US plan to use money from frozen Russian assets to help Ukraine. This money, mostly stuck in Europe, could provide $50 billion in aid to Ukraine. This step is crucial as it helps ensure the US stays involved in supporting Ukraine, no matter what happens in the upcoming US elections.

US and European officials say this plan is gaining support and will be a major topic at the Group of Seven (G-7) meeting in Stresa, Italy, where finance ministers and central bank governors will gather.

Important Meetings and Timelines

German officials believe a final decision won't be made until G-7 leaders meet in mid-June, and the plan might not be put into action until next year.

The goal is to keep Ukraine financially stable so it can defend itself and pay its debts through 2025. With the war ongoing and Russia gaining ground, Ukraine's supporters want to ensure steady funding for Ukraine and show Russia that the G-7’s support for Ukraine is strong.

Impact of US Elections and Political Challenges

The need to use the frozen assets has become more urgent because of the uncertainty around the US elections. Political divisions in Washington have made it hard for President Joe Biden to send more aid to Ukraine, and his opponent, former President Donald Trump, has been skeptical about supporting Ukraine.

In response to Russia's invasion of Ukraine in February 2022, the G-7 countries have frozen about $280 billion of Russian central bank assets, mostly held at Euroclear, a clearinghouse in Belgium.

How the Plan Works and European Reactions

The US has been pushing to use these assets for Ukraine for months. Options included taking the money outright, issuing bonds, or using the assets as loan guarantees. Initially, some European countries, including France and Germany, were worried about financial stability and legal issues. However, the latest US proposal has been received more positively.

The plan now is to use only the interest earned from these assets, not the main amount, to support Ukraine. EU countries have agreed to tax this interest heavily and send the money to Ukraine twice a year. A G-7 agreement would formalize this process.

These assets are expected to generate around €5 billion each year. The idea is to estimate this income over several years and give that amount to Ukraine upfront.

Remaining Challenges

The total aid package could be up to $50 billion, depending on how long the assets are frozen and the repayment terms. Details on managing this aid are still being worked out.

The US hopes all G-7 countries will join in providing the upfront loan, but is ready to do it alone if the EU ensures the assets stay frozen and the loan is repaid.

Long-term questions remain, such as what happens if the war ends and Russia agrees to pay for Ukraine’s reconstruction, which could affect the frozen assets and loan guarantees.

The European Central Bank and EU countries also worry about protecting Euroclear from financial risks, like lawsuits from Russia or retaliation. If the EU must renew the asset freeze every six months, a single country could block it, risking the loan repayments.

This collaboration between the US and Germany is a big step in securing Ukraine’s financial future and showing strong international support for the country.

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