STRESA, Italy ― European countries will only reluctantly agree to a U.S. push to use the profits of frozen Russian assets to issue a large loan to Ukraine.
With finance ministers of the G7 group of advanced economies continuing their meeting in Italy on Saturday, the EU’s most powerful capitals are demanding guarantees from the U.S. that Europe won’t end up bearing the costs of what they see as Washington’s pet project.
For months, the U.S. has been pushing its European allies to look into alternative ways to raise cash for Kyiv amid fears that existing funds to the war-torn country will run out as early as next year.
While the signals are now strong that Europe will agree to the U.S.-led proposal to leverage the future profits of the assets to issue a €50 billion loan to Ukraine, countries such as France and Germany fear their taxpayers will be on the hook if Kyiv can’t pay the loan back once the war is over.
“We still need to understand the different options,” said German Finance Minister Christian Lindner. “We need to assess the economic, legal consequences so it’s much too early to be concrete on some of the elements of such an instrument.”
Russian state assets were frozen in Europe immediately after President Vladimir Putin’s invasion of Ukraine in February 2022. They have since been invested and are earning interest. After months of disagreement, the U.S has scaled back its original plan to seize the assets in their entirety and instead use the interest as leverage for a loan.
The EU has more skin in the game because it holds the bulk of Russia’s frozen assets, while U.S. banks only keep a negligible amount of funds.
After months of disagreement, the finance ministers gathering in Italy are trying to show a united front, but cracks soon started to emerge as EU counties showed only lukewarm support for the U.S. plan.
Diplomats face an uphill struggle to iron out these differences before a meeting of G7 leaders in Italy in mid-June.
“The leaders’ G7 in Puglia is the ideal place for a political conclusion,” EU Economy Commissioner Paolo Gentiloni told reporters in Stresa.
Europe stands to lose
Europe is worried that agreeing to the U.S. proposal will give Washington a PR win, while they will ultimately be the ones footing the bill.
Under the plan, yearly interest on the assets would be used to pay the loan back, but European officials are keen to sketch out a backup plan in case the assets are handed back to Russia when the war is over.
There are related fears that European taxpayers would have to cough up the cash if Ukraine’s debt repayments are delayed by its creditors under a peace settlement.
EU members of the G7 — Germany, France and Italy — stressed that the U.S. must pay its share if interest payments change halfway through the loan or if Ukraine can’t service its debt in the years to come.
The stakes are high for the EU as a whole. This week the bloc’s 27 capitals signed off on a plan to use 90 percent of the profits generated from frozen Russian assets in Europe, about €3 billion, to buy weapons for Ukraine starting from July this year.
Some European capitals, such as Paris, are reluctant to dramatically change this hard-won agreement to take on board elements of the U.S. proposal.
A further element of tension is that Washington is keen to hand over the potential loan directly to Ukraine. EU officials suggested instead to issue the money through its dedicated fund to Kyiv as most of the assets are held in Europe.
Russia’s friends in the EU
Two European officials expressed fears that EU countries that are sympathetic to Russia, such as Hungary, might oppose anything that comes close to the U.S. plan. A single government can block the renewal of sanctions against Russia every six months — adding a further layer of uncertainty to this funding path.
Earlier this week, Hungary signaled its opposition to weapons purchases for Ukraine under the more limited EU-led plan on frozen assets. This is a sign of what might come if the U.S. proposal comes to pass.
“We need a European consensus between 27 [countries] with respect to the fact that we’re using proceeds from other entities,” Italian Finance Minister Giancarlo Giorgetti told reporters in Stresa.
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