July 13, 2024

G7 agrees $50bn loan for Ukraine from Russian assets

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The G7 has agreed to use frozen Russian assets to raise $50bn (£39bn) for Ukraine to help it fight invading Russian forces.

US President Joe Biden said it was another reminder to Russia “that we’re not backing down”, but in Moscow, President Vladimir Putin said the move was “theft” which would “not go unpunished”.

Also at the G7 summit in Italy, Ukrainian President Volodymyr Zelensky and Biden signed a 10-year bilateral security deal between Ukraine and the US, hailed by Kyiv as “historic”.

The agreement envisages US military and training aid to Ukraine — but it does not commit Washington to send troops to fight for its ally.

According to the White House, the security deal means Washington and Kyiv will work to build and maintain Ukraine’s defense and deterrence capability, bolster the country’s defense industrial base, and support economic recovery and energy security.

The security deal also means that in the event of a future Russian armed attack against Ukraine, there will be consultation “at the highest levels to determine appropriate and necessary measures to support Ukraine and impose costs on Russia”, the statement added.

Separately, some $325bn worth of assets were frozen by the G7, alongside the EU, following Russia’s full-scale invasion of Ukraine in 2022. The pot of assets is generating about $3bn a year in interest.

Under the G7 plan, that $3bn will be used to pay off the annual interest on the $50bn loan for the Ukrainians, taken out on the international markets.

The money is not expected to arrive until the end of the year but is seen as a longer-term solution to support Ukraine’s war effort and economy.

Speaking at a joint news conference at the summit’s venue in Puglia, southern Italy, President Biden said the $50bn loan would “put that money to work for Ukraine and send another reminder to [Russian President Vladimir] Putin that we’re not backing down”.

The US leader stressed that Putin “cannot wait us out, he cannot divide us, and we’ll be with Ukraine until they prevail in this war”.

President Zelensky thanked his American and other allies for their unwavering support.

And referring to the new security deal, he said: “It’s a truly historic day and we have signed the strongest agreement within Ukraine and the US since our independence [in 1991]”.

The G7 group of rich nations, Canada, France, Germany, Italy, Japan, the UK and US, have been important financial and military supporters of Ukraine as it battles to contain occupying Russian forces.

Other G7 leaders also hailed the $50bn loan deal, with UK Prime Minister Rishi Sunak describing it as “game changing”.

The $50bn loan is a sizeable pot of money, when compared with the $61bn worth of US military aid that was finally agreed in May.

A senior White House official said the G7-agreed fund will have “multiple” uses, which could include “military support, budget support, humanitarian support, reconstruction support”.

There will be “flexibility in this structure,” the US official added, as some countries “prefer to send their money to budget support and to reconstruction” while others will have funds “earmarked” for military support.

Some of those in Kyiv, who had been pushing for this cash, had wanted the G7 to release the whole frozen fund of $300bn, not merely the interest it is generating. The European Central Bank had ruled that out.

The bank’s president, Christine Lagarde, has previously warned that such a move risked “breaking the international order… you would want Russia to respect”.

Unlike the US aid package, which directly translated into more missiles being sent to the front line, this money will likely not arrive until the end of the year, meaning it will have little impact on the current course of the war.

For now, Ukraine says it still urgently needs more weapons — primarily air defense systems to blunt Russia’s missile and drone attacks on its cities and power stations, as well as long awaited F-16 fighter jets, which it hopes will start arriving as early as this summer.

At the G7 summit, Zelensky said the new security agreement included US shipments of those warplanes.

The loan deal is also hugely symbolic for Ukraine. Its aggressor is now being forced to pay, not only to repair the devastation it has wrought — but for Ukraine to defend itself.

One of Zelensky’s closest advisers has said that the West’s decision to punish Russia in this way, in one sense, marks a turning point in the war.

However, the loan is unlikely to force a Russian U-turn on its war in Ukraine.

Most of the frozen assets of the Central Bank of Russia are being held in Belgium.

Under international law, countries cannot confiscate those assets from Russia and give them to Ukraine.

Speaking the day after the G7 decision was announced, President Putin vowed that the move “would not go unpunished”.

Moscow has said it interprets attempts by the West to use money generated from frozen Russian assets as a criminal action.

In February, Russia’s Finance Minister said the country had “ways to respond” if Western nations moved to seize Moscow’s funds.

European officials have previously said that European investors have around €33bn worth of funds stuck in Russia.

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