The proposal to utilize future interest earned on some $300 billion worth of frozen Russian assets to support Ukraine, instead of seizing them outright, is gaining traction among the Group of Seven nations. The plan involves collateralizing the interest accrued on these assets, estimated at around $5 billion annually, which seems to be a favored option to bridge the gap between the U.S. and Europe.
As discussions continue among G7 members, there are concerns about particular “holdbacks” that could diminish the anticipated windfall profits to just $2.5-$3.0 billion. These issues include Belgium’s 25% tax rate, a “convenience fee” imposed by depository Euroclear, and a proposed litigation reserve. A consensus proposal is expected to be presented to the leaders at the G7 summit in Italy in June.
There is a sense of urgency to reach an international consensus on this matter, as all parties acknowledge the need to do more to support Ukraine. While Washington maintains that all options, including seizing Russian assets, are justified under international law, there is a push to rally support around a solution that can provide immediate assistance to Ukraine.
The aim is to secure a longer-term stream of funding for Ukraine, addressing financing gaps that may arise in the future. By opting for a loan instead of a bond, countries can act swiftly without the need for formal issuance processes. This approach would enable G7 nations to offer additional support to Ukraine at a relatively low cost.
The proposal to focus on interest earned from the assets reflects a shift in Washington’s strategy, moving away from outright seizure. Europe sees this plan as a way to leverage windfall proceeds without the risk of confiscation. The emphasis is on utilizing proceeds that have been deemed not owned by Russia, avoiding any direct or implied threat of seizure.
Analysts like Brad Setser view this approach as a reasonable and low-risk option that could serve as the basis for a potential agreement in June. G7 countries have committed to keeping the Russian assets frozen until certain conditions are met, such as the withdrawal of Russian forces from Ukraine and reparations for damages caused by the invasion.
This critical analysis highlights the complexities involved in utilizing frozen Russian assets to aid Ukraine, emphasizing the importance of international cooperation and consensus-building to address the ongoing crisis in the region. While the proposal shows promise in providing immediate financial support, there are still hurdles to overcome in ensuring that the plan is executed effectively and in a manner that benefits Ukraine in the long run.