G7 explores legality of €30bn loan for Ukraine using seized Russian assets

Divisions on whether Ukraine can legally receive a €30 billion loan sourced from €270 billion in seized Russian state assets are set to dominate discussions at the G7 finance ministers’ meeting in Stresa, Italy this week.

The United States has been rallying support for this plan, intended to aid Ukraine’s reconstruction and military needs. For over a year, debates on repurposing these frozen Russian assets have been deadlocked. Advocates for full asset seizure face resistance from central bank governors and insufficient backing within the G7.

This proposal has even revealed rare discord between the US and Germany. European Central Bank President Christine Lagarde recently raised legal and economic concerns about seizing the assets, warning that it could destabilise the international legal order and financial system.

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Lagarde cautioned that such actions could deter countries like China and Gulf states from using Western currencies, fearing similar asset seizures. Despite her objections, the US, with UK support, argues for mobilising the frozen assets to provide Ukraine a significant loan, with interest covered by the assets’ annual profits.

Ahead of the G7 meeting, the US and UK suggest that, rather than providing small annual sums, a €30 billion loan or bond could be issued to Ukraine, backed by the state to attract private investors. This would use Russian assets as collateral, a move considered reversible until Russia pays reparations.

Critics contend this equates to confiscation, as collateral use implies ownership.

Belgium, holding €191 billion of the frozen assets through Euroclear, has generated €5 billion in investment income from them in 2022-23. Recently, Belgium agreed to contribute over €1 billion in taxes from this profit to a G7 fund for Ukraine, after allocating €500 million to Ukraine this year.

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Nigel Gould-Davies of the Institute for Strategic Studies criticised the current risk assessment, arguing it is paradoxical to consider it riskier to seize Russian state assets than to supply Ukraine with arms. Legal scholars and campaigners argue that the assets can be seized under state countermeasures and that any damage to the euro’s confidence would have occurred when the assets were initially frozen in 2022.

Olena Halushka from the International Centre for Ukrainian Victory emphasized that withholding the assets risks far greater economic and security repercussions for Europe if Ukraine loses the war.