A recent U.S. proposal to use the future interest on approximately $300 billion in frozen Russian assets to assist Ukraine, rather than seizing the assets outright, has been gaining traction among the Group of Seven (G7) nations, according to two G7 officials. The idea is to collateralize the interest earned on these assets, which could amount to around $5 billion per year, thus offering a potential solution to bridge differences between the United States and Europe ahead of the G7 leaders’ summit in Italy in June.
While the proposal to collateralize the interest on the frozen Russian assets seems promising, G7 members are still in disagreement over certain “holdbacks” that could significantly reduce the expected windfall profits to a range of $2.5 to $3.0 billion. These holdbacks include Belgium’s 25% tax rate, a “convenience fee” imposed by depository Euroclear, and a proposed litigation reserve. The G7 finance ministers are expected to address these issues at a meeting in late May with the goal of reaching a consensus proposal to present to leaders during the June summit.
There is a sense of urgency among G7 nations to build international consensus on how to best support Ukraine. While the United States maintains that all options, including the outright seizure of Russian assets, are justified under international law, it is also seeking to rally support around an idea that could provide immediate assistance to Ukraine. The focus on utilizing interest from the assets represents a shift for Washington, following resistance from France, Germany, and the European Central Bank against confiscating the assets out of concern for potential negative impacts on the euro.
The proposal to provide a loan, rather than issuing a bond, is seen as a practical approach that would not require formal issuance with a prospectus, enabling sovereign countries to act swiftly. This method would also allow G7 countries to offer additional support to Ukraine at a relatively low cost. The goal is to secure longer-term funding for Ukraine, as the country still faces financing gaps in 2025 and 2026, despite significant aid packages from the U.S. and the European Union.
According to Brad Setser, a senior fellow at the Council on Foreign Relations, the U.S. proposal to utilize the anticipated interest income on frozen Russian assets could serve as a viable basis for reaching an agreement in June. Setser believes that this approach presents limited legal risks and aligns with the G7’s commitment to keeping Russian assets frozen until certain conditions are met. By focusing on the windfall proceeds without direct seizure, the proposal aims to avoid threats of confiscation and build consensus among G7 members.
The debate over using future interest on frozen Russian assets to aid Ukraine reflects the complex geopolitical dynamics at play within the G7. While the proposal offers a potential solution to provide immediate financial support to Ukraine, ongoing disagreements and concerns must be addressed to ensure a unified approach among member nations. As discussions continue and diplomatic negotiations unfold, the ultimate decision on this matter will shape not only the economic landscape but also the broader international relations within the G7 alliance.