G7 draws up plans to backstop debt-raising for Ukraine with Russian assets

In a concerted effort to provide financial support to Ukraine, the Group of Seven (G7) nations, including the USA, Great Britain, Germany, Italy, Canada, France, and Japan, are contemplating the issuance of debt obligations. The Financial Times (FT) reports that these debt obligations will be backed by Russian frozen assets, marking a strategic move to leverage these assets as collateral for financing Ukraine's recovery.

According to FT's sources, the coalition supporting Ukraine intends to compel Russia to repay the debt. In the event of non-compliance, there are provisions for the confiscation of the frozen sovereign assets. This innovative approach is seen as an attempt to find common ground in negotiations among the European Union (EU), Russia, and the G7.

The plan outlined by the G7 is designed to enable the coalition to raise funds for Ukraine without immediately delving into the legal complexities surrounding the confiscation of Russian assets. Importantly, it aims to provide some liquidity to Ukraine based on the coalition's commitment that Russia will honor the repayment terms.

Sources suggest that this approach serves as a pragmatic compromise, offering a way to navigate the complexities of the negotiation table. It leverages Russian assets to generate funds for Ukraine while simultaneously signaling a commitment to resolving legal issues in due course.

Earlier this year, on January 31, the Permanent Representatives of the European Union (EU) concurred on preliminary measures proposed by the European Commission (EC) for utilizing frozen Russian assets in supporting Ukraine's reconstruction. The arrangement involves storing income generated from Russian frozen assets by the European clearing company Euroclear in special accounts. These funds will be deployed to aid Ukraine once EU member states unanimously endorse such a decision.

Since the initiation of the military special operation, the G7 countries, along with Australia and European nations, have collectively frozen around 260 billion euros ($280 billion) in both cash and securities. Notably, approximately 191 billion euros ($207 billion) of this total is held within the Belgian Euroclear. The EC estimates that Euroclear earned over 3 billion euros from investments last year and anticipates an additional 15 billion euros (over $16 billion) over the next four years.