The group of 7 rich Western economies agreed in Italy to a $50 billion loan to Ukraine. Here’s how it will work.
The group of 7 wealthy Western nations agreed to a $50 billion loan to Ukraine in support of its war effort against Russia. The G7 leaders met in Borgo Egnazia, a small town in the Southern Italian region of Puglia.
Ukrainian President Volodymyr Zelenskyy joined the Western leaders in Italy in a show of diplomatic support for his country.
The $50 billion loan will be financed from interest rates of frozen Russian assets in Western banks. Russia owns roughly $600 billion in total foreign reserves, half of which sits in European Union nations like Belgium.
The EU froze Russia’s $300 billion reserves in its members’ banks after the 2022 invasion of Ukraine. This means Russia is unable to access its assets even though they keep generating interest for European banks.
The G7 members agreed to utilize these interests in support of Ukraine. Zelenskyy asked several times to use the $300 billion liquid assets instead, but the European Central Bank ruled it out. Confiscating the Russian reserves and giving them to Ukraine would go against international law and require a fierce juridical battle for it to work.
The $50 billion loan will be guaranteed by the United States and supplemented by European contributions if the assets don’t generate enough interest.
How will the Ukraine war change
Although smaller than the total Russian assets frozen in EU banks, the $50 billion loan is still very sizeable. By comparison, the $61 billion aid package approved by the US Congress in April is expected to support Ukraine until the end of the year.
However, US officials don’t expect Ukraine to begin a counter-offensive with those funds. They will be used to purchase highly specialized defense systems that will most likely stop the Russian advance.
Ukraine is therefore still in desperate need of Western aid. Especially if, as US President Joe Biden said, Western nations want to support “Ukraine until they prevail in this war".
The G7-supported $50 billion loan will be available for Ukraine by the end of 2024, a French official said. The war-thorn country could use the loan to purchase additional armaments and defense equipment.
But beyond the material war needs, the loan could also go toward the reconstruction of Ukraine. The World Bank estimates that the total reconstruction costs in the country are $486 billion. Western nations agreed Russia should bear the brunt of the reconstruction effort, but it’s unclear if and how it will pan out.
