Hopes of a multi-country deal to use $300bn of Russian state assets frozen in the European banking system to support Ukraine have grown after it emerged that G7 ministers were confident of overcoming technical and political obstacles at a meeting in northern Italy on Saturday.
The Canadian finance minister, Chrystia Freeland, said she was optimistic that G7 leaders would reach an agreement, as support coalesced around a plan to use frozen Russian central bank assets as security for a $50bn (£39bn) loan.
Finance ministers from the Group of Seven nations gathered in Stresa, Italy, have been in discussions to thrash out a plan to present to national leaders for final agreement at a summit in mid-June.
About $300bn (£235bn) belonging to the Russian central bank has been frozen in the west, largely in foreign currency, gold and government bonds. About 70% of this is held in the Belgian central securities depository Euroclear, which is holding the equivalent of £162bn.
The US is estimated to have $40bn-$60bn worth of Russian assets, and the UK closer to £25bn, but no official figure has been disclosed.
Ukraine has been pushing for access to the funds to help finance the reconstruction of its battered infrastructure, freeing up other loans and grants to buy extra weaponry in the war with Russia. Russia recently opened a new front north of Kharkiv and consolidated its position in the south, thwarting Ukrainian advances.
The British foreign secretary, David Cameron, has previously said the UK was in favour of lending Ukraine the entire sum on the basis that Russia will be forced to pay reparations at the end of the war.
Freeland said the group was working on a “collaborative approach” where all partners could find agreement.
Her comments came after the World Bank president, Ajay Banga, said he was “absolutely” open to the idea of managing a G7 loan fund for Ukraine backed by the earnings from frozen Russian sovereign assets.
Speaking at the finance ministers’ meeting, Banga said the World Bank had ample experience in managing similar non-military donor fund facilities, including one for Afghanistan. It could “replicate” that work for a Ukraine loan, he said.
The Italian finance minister, Giancarlo Giorgetti, struck a similarly positive note, saying he was “optimistic” on this “key issue” and that the hope was to present the G7 leaders with a plan.
However, Germany’s finance minister, Christian Lindner, a centre-right member of the Berlin coalition government, was more equivocal: “There are many unresolved issues, many unanswered questions here. I don’t expect any decisions to be made; the matter is too complex for that. There are still far too many questions open.”
Campaigners say all of the funds should be confiscated in order to send a message to Moscow that its war would be met with overwhelming support for Ukraine.
However, European governments, including the UK, have balked at the plan, initially arguing that they could only justify using the interest generated by the Russian assets, amounting to about €2.5bn-€3bn (£2.1bn-£2.6bn) a year.
Under an agreement reached last week by EU member states, 90% of the interest proceeds would go into an EU-run fund to be spent supporting Ukraine’s military, with the other 10% going to other forms of support. The EU expects the assets to yield about €15bn-€20bn in profits by 2027. Ukraine is expected to receive the first tranche in July, EU diplomats have said.
A US plan to leverage all the funds to support a loan has gained traction, though many of the technical issues, including how the loan’s sponsoring countries would allocate funds for projects, had yet to be resolved before the finance ministers’ meeting.
A group of international lawyers has given an opinion that confiscation could be carried out within existing legal frameworks, arguing that Russia’s attack was a breach of international law and justified reparations worth at least the cost of the damage inflicted on Ukraine, which according to World Bank estimates is $480bn (£377bn).
The US Treasury secretary, Janet Yellen, has suggested that a $50bn loan is possible using Russia’s funds as collateral, in addition to the EU plan, giving Ukraine a generous lifeline that would take effect regardless of the outcome of the US presidential election later this year.
“Our hope would be to show that those assets do provide a viable stream of support in the years to come,” she said. “This is an assured source of financing and it’s important that Russia realise that we will not be deterred from supporting Ukraine for lack of resources.”
Ukraine has a team of officials at the meeting acting as advisers. It is also hoping to secure funding from the International Monetary Fund (IMF), which will be sending a mission to Poland on Monday for week-long talks with Ukrainian finance officials.
Kyiv must convince the IMF that all the conditions of its previous loans have been met. It should receive another $2.2bn before a further review in the autumn.