G7 ministers to discuss €30 billion loan to Ukraine using Russian assets as collateral

The G7 finance ministers will discuss the legality of using €270 billion of frozen Russian state assets as collateral for providing an additional €30 billion loan to Ukraine when they meet this week in Stresa, northern Italy.

According to The Guardian, debates on how to make frozen Russian state assets available to Ukraine reached a stalemate over a year ago, as proponents of full asset seizure, as opposed to freezing, failed to convince central bank leaders or gain sufficient support within the G7. 

Proposals to use state assets as collateral for a loan are a rare point of contention between the US and Germany.

Christine Lagarde, President of the European Central Bank, raised legal and economic objections to full asset seizure last week. However, the US, strongly supported by the UK, is determined to try to bypass these objections. 

Washington aims to counter her arguments by stating that frozen assets do not need to be seized or confiscated but can instead be mobilised to provide Ukraine with a large loan, with interest payments funded by the annual earnings of the frozen Russian assets. The seizure of Russian central bank assets and their transfer to Ukraine as an advance payment for reparations is now effectively ruled out.

"Moving from freezing the assets to confiscating the assets, disposing of them, is something that needs to be looked at very carefully," Lagarde has said, adding it would "start breaking the international legal order that you want to protect, that you would want Russia and all countries around the world to respect".

But ahead of the G7 leaders' meeting, the US and the UK argue that instead of providing relatively small amounts, such as €500 million from annual interest, it would be better to provide Ukraine with a loan or bonds worth about €30 billion, with interest payments funded by earnings from the large frozen assets. G7 countries could secure the bonds with state guarantees to reassure private investors, officials stated at the Lennart Meri Conference on security issues in Tallinn over the weekend.

Using Russian central bank assets as collateral would be a reversible measure until Russia pays reparations. Critics of the plan argue that using an asset as collateral implies ownership of the asset, tantamount to confiscation. The EU has agreed with great difficulty that part of the interest from Russian assets seized by Western states could be given to Ukraine.

Belgium, where the Brussels-based securities depository Euroclear is located, is the largest holder of frozen Russian state assets worth €191 billion. Assets in Belgium have already generated €5 billion in investment income in 2022-23. 

Earlier this month, after consultations with the EU, Belgium agreed to pay over €1 billion in taxes from this income to the G7 joint fund for Ukraine starting next year. This year, the Belgian government transferred €500 million from this income to Ukraine. The rest it retained for its reserves and some hypothetical financial risks, such as lawsuits with Russia.

Ukraine's Justice Minister Denys Maliuska believes that the estimated €3 billion in annual revenues from frozen Russian assets transferred to Kyiv by the European Union will not be sufficient to meet the country's needs.