Two weeks after President Biden reversed course and authorized the firing of U.S. military weapons on Russian territory, he and his closest allies are preparing a different kind of attack: using revenue from Russia’s own financial assets to help rebuild Ukraine.
The world’s largest Western economy has been debating for two years what to do with $300 billion in frozen Russian assets that the Kremlin left in Western financial institutions after the 2022 invasion of Ukraine began.
There has now been a lengthy debate over whether Western countries can legally hand over these assets to the government of Ukrainian President Volodymyr Zelensky, but allies appear to be closing in on a compromise to be announced at the Group of Seven summit in Italy.
The Group of Seven, the world’s richest democracies, is seeking to agree to about $50 billion in loans to rebuild Ukraine’s dilapidated infrastructure, to be repaid with interest on frozen Russian assets, Western officials said. But experts say even that amount would do very little to build a new Ukraine.
The funding announcement is just part of a summit this week that will cover a range of topics, including how to reverse Russia’s new momentum and how to achieve a ceasefire between Israel and Hamas. Biden’s national security adviser, Jake Sullivan, said Biden and Zelensky are expected to meet on Thursday and sign a security agreement.
“We want to show the Ukrainian people that the United States stands with them and will continue to help meet their security needs, not just tomorrow but into the future,” Sullivan told reporters aboard Air Force One on the way to Italy.
“By signing this, we are also sending a signal to Russia of our resolve,” he added. “If Vladimir Putin thinks he can outlast the coalition supporting Ukraine, he is mistaken.”
The summit will also feature scenes as leaders seek to look beyond the current crisis, including a meeting between the leaders and Pope Francis focused on harnessing the power of artificial intelligence.
The loan agreement is A surge in new sanctions The steps, aimed at countering Chinese efforts to reshape Russia’s defense industrial base, are part of the latest efforts to bolster Ukraine and thwart Russia at a dangerous juncture in the 27-month-old conflict.
Still, Europe is preparing for the possibility that former President Donald J. Trump, who has publicly vowed to withdraw from NATO, could be back in power before the next NATO meeting in 2025. And several of the leaders in attendance, including British Chancellor Rishi Sunak and French President Emmanuel Macron, are facing elections that could redefine Europe.
Biden faces the hurdle of persuading Zelenskiy and other allies that the U.S. intends to continue fighting Ukraine no matter what happens in November. Biden aides acknowledge that long delays in Congress passing a $61 billion bill for new munitions and air defense systems this spring cost Ukraine lives, territory and a tactical military advantage.
“I apologize to Zelenskiy in France last week for not knowing for a few weeks what was going to pass,” Biden said, placing the blame on Republicans in Congress. “Some very conservative members were holding us up,” he said.
But the size of opposition in Congress has also raised questions about whether the massive military package will be the last to be deployed, threatening Mr. Biden’s claim as a Western leader who has rallied other allies to thwart further attacks by President Vladimir V. Putin.
At this critical juncture in the war, G7 leaders appear close to wrapping up months of talks on how to use $300 billion in frozen Russian central bank assets, mostly held in European financial institutions, to pump economic aid into Ukraine.
Biden appeared to persuade France, a last-ditch holdout, to back the deal during a visit to Normandy last week. At the end of the visit, French President Emmanuel Macron told reporters, “I expect all members of the G7 to agree to a $50 billion solidarity fund for Ukraine.”
The Biden administration, after considerable internal debate, has been pushing for a blanket seizure of assets, but the idea has not been well received in Europe, where most of the funds are kept, due to concerns that it would violate international law.
The European Union has agreed to provide Ukraine with around 3 billion euros a year in interest earned at Euroclear, the Belgian central securities depository where most of the central bank’s assets are held.
But the Biden administration wanted to give Ukraine more money up front and devised a plan to use the interest to back loans that the United States and other G7 countries could immediately disburse.
The loan, which could reach up to $50 billion, would be repaid over time with so-called windfall profits generated by Russian funds.
In recent weeks, G7 finance ministers have been trying to iron out the intricate details of how those loans would work, but some questions remain unanswered. Officials are trying to determine how the money would actually get to Ukraine, and have considered sending it through an institution such as the World Bank as an intermediary.
It is unclear how the loans would be repaid if the war ended before the bonds matured, or if interest rates fell and the earnings on the assets were insufficient to repay the loans.
John E. Herbst The senior director of the Atlantic Council’s Eurasia Center and former U.S. ambassador to Ukraine said the asset release is of utmost importance to the G7 countries, especially in the wake of the gridlock in Congress and delays in the U.S. providing certain weapons to Ukraine.
“The administration was quick to get aid to Ukraine once Congress acted, which I appreciate,” he said, “but it’s still slow to get Ukraine what it needs in terms of appropriate weapons systems, especially now. This is not just a failure of the United States, it’s a failure of the entire alliance.”
Lifting the frozen assets would be a “game changer,” said Evelyn Farkas, director of the McCain Institute at Arizona State University and former assistant secretary of defense for Russia, Ukraine and Eurasia under President Barack Obama.
Farkas said the U.S. delay likely “focused European minds” by making European countries feel “the U.S. can’t be trusted and we have to come up with an alternative.”
“I hope they stay focused,” she said.
Alan Rapeport Contributed report.