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The EU is considering indefinitely extending its sanctions on Moscow’s state assets, in a move that would soothe US concerns over plans to use the proceeds of Russian central bank funds to fund a $50bn loan to Ukraine.
Ambassadors from the 27 member states will meet today to discuss a European Commission proposal for the “open-ended immobilisation of the Central Bank of Russia assets”, according to a document seen by the Financial Times.
The move, which would apply to the European share of the €260bn worth of central bank assets immobilised outside of Russia, would “provide G7 partners with the highest degree of predictability” regarding the repayment of a $50bn loan that leaders of the grouping of advanced economies signed off on last month. The plan is to repay the loans with profits arising from the assets.
At present, sanctions are repeatedly applied every six months, creating concern among the EU’s allies that the loan will not be fully repaid.
The lack of such predictability has been a big stumbling block in achieving a sign-off on the loan from the US, which wants stronger assurances from Europe that it will keep the €190bn-worth of assets stuck in Belgium’s central securities depository Euroclear frozen until the loan is repaid, or Russia agrees to reparations that would cover the cost of borrowing.
The move comes ahead of US elections in November, where leading candidate and former president Donald Trump has called into question continuing aid to Ukraine, spurring G7 allies to maximise support to the war-torn country before year’s end.
A commission spokesperson declined to comment.
G7 leaders agreed in June to issue Ukraine with a loan of up to $50bn that would be repaid from the future stream of profits arising from Russian central bank assets frozen under sanctions. Those held in Euroclear are expected to generate around €3bn in profits per year.
While a second option — to prolong the rollover of sanctions from six months to up to three years — is also mentioned in the document, officials acknowledge that only the first is likely to meet Washington’s approval.
“Option one is the only option. It’s difficult, but it’s the only route that gives certainty and is feasible,” a person involved in the negotiations said regarding the two proposals.
Both options would require unanimous approval from EU27 countries, a tall order given that Hungary’s envoy has in the past signalled this would need to be raised at EU leaders’ level.
Hungary has routinely blocked unanimous decisions on Ukraine, including on the reimbursement of around €6.5bn in military aid.
G7 countries have also been discussing how to split the responsibility for the $50bn loan, with the issue set to come up again at a meeting of G7 finance ministers on the sidelines of a G20 meeting in Rio de Janeiro on Wednesday.
The prevailing idea is that countries would take on a share of the loan roughly proportional to their GDP, with the EU and US contributing $20bn each, and Canada, the UK and Japan the remaining $10bn.
Should EU countries fail to back the sanctions extension, the European Commission could initially issue a larger share of the loan of “up to €40bn”, according to two EU officials.
Its share could then be adjusted to a lower amount, once other countries have made commitments.