G7 leaders strike deal on $50bn loan to Ukraine

G7 leaders have reached a deal to use profits from frozen Russian sovereign assets to help Ukraine in an attempt to shore up support for Kyiv while they grapple with a barrage of domestic political difficulties. 

Under the agreement struck on Thursday at a summit in the southern Italian region of Puglia, G7 members will provide “approximately $50bn” to Ukraine backed by the future proceeds from Russian assets.

“With a view to supporting Ukraine’s current and future needs in the face of a prolonged defence against Russia, the G7 will launch ‘Extraordinary Revenue Acceleration (ERA) Loans for Ukraine’ in order to make available approximately $50bn in additional funding to Ukraine by the end of the year,” the G7 leaders agreed, according to a statement seen by the Financial Times and due to be published on Friday.

The financing would be disbursed “through multiple channels that direct the funds to Ukraine’s military, budget and reconstruction needs”, it said.

Russia’s assets would remain immobilised until Moscow ended its war against Ukraine and repaid the damage it caused, the statement added.

“It’s a very strong message to Putin that Putin cannot outlast us, and we will stand by Ukraine as long as it takes,” European Commission president Ursula von der Leyen told reporters.

“It is not European taxpayers that are paying for the Russian damage [in Ukraine] but it is Russia,” she added.

A senior Biden administration official said the deal would involve a “loan syndicate” including multiple lenders to “share risk” but the exact shares of the $50bn for each country were not yet settled.

The US official said the next steps would be to secure approval from EU member states, then sign contracts between lenders, Ukraine and any intermediaries. Each loan could be directed for specific purposes, whether military aid or economic and humanitarian relief. While the money would start flowing to Ukraine this year, the pace and timing would depend on Kyiv’s capacity to absorb it, the official said.

A senior EU official involved in the talks said they were confident of securing the majority of member states required to support the plan and were in regular touch with capitals so there would “be no surprises”.

Ukrainian President Volodymyr Zelenskyy joined G7 leaders after the deal was struck.

Jake Sullivan, the US national security adviser, had earlier said the proposed deal was “a good outcome”.

The summit comes at a time of political turmoil in a number of G7 countries. The US presidential election is looming in November, with Joe Biden locked in a tough race against former president Donald Trump.

UK elections are set for July 4, with Rishi Sunak expected to be unseated as prime minister and his Conservative party likely to lose to Labour for the first time in 14 years.

Last week’s vote for the European parliament delivered a surge in far-right parties in France and Germany that dealt heavy blows to German Chancellor Olaf Scholz and Emmanuel Macron, president of France, who called for snap parliamentary elections starting later this month.

An agreement on delivering additional support for Ukraine using the frozen assets would be a sign that G7 leaders remained united in their defence of Kyiv as well as their broader foreign policy priorities, western officials said.

The overwhelming majority of the Russian sovereign assets frozen by western countries in the days following Moscow’s full-scale invasion of Ukraine in February 2022 are held in the EU.

Thursday’s deal came together after the EU and its G7 member states — Italy, France and Germany — balked at a US proposal that EU-generated earnings would underpin a US-issued loan.

Brussels argued it could not give a cast-iron guarantee that its sanctions — which collect profits on the Russian assets worth about €3bn a year and are rolled over every six months — would remain in place indefinitely, and thus each country would need to assume a slice of the risk.

The World Bank was expected to play a role in the disbursement of the US slice of the loan package, said two people familiar with the talks.

Additional reporting by Amy Kazmin and Lucy Fisher in Bari

Letter in response to this article:

Did G7 miss a trick in its frozen Russian assets plan? / From Peter Krijgsman, Taunton, Somerset, UK