G7 agrees to deal on $50bn loan to Ukraine

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G7 negotiators have reached an agreement to utilize profits from frozen Russian sovereign assets to aid Ukraine, aiming to bolster support for Kyiv amidst various domestic political challenges.

The agreement involves G7 members providing approximately $50 billion to Ukraine, backed by future proceeds from Russian assets. This financial aid is set to be the highlight of the group’s annual summit in Puglia, Italy.

According to an agreed statement seen by the FT, the G7 will launch “Extraordinary Revenue Acceleration (ERA) Loans for Ukraine,” aiming to make around $50 billion available by the end of the year. These funds will be directed towards Ukraine’s military, budget, and reconstruction needs.

The assets will remain immobilized until Russia ends its war against Ukraine and compensates for the damage caused. A senior Biden administration official mentioned that the deal involves a “loan syndicate” with multiple lenders to share the risk, though the specific contributions of each country are yet to be determined.

Next steps include securing approval from EU member states and signing contracts between lenders, Ukraine, and intermediaries. Loans will be allocated for specific purposes such as military aid or economic relief, with disbursement paced according to Ukraine’s capacity to absorb the funds.

A senior EU official expressed confidence in securing the necessary support from member states, indicating ongoing communication to avoid surprises. The deal is expected to be announced when Ukrainian President Volodymyr Zelenskyy joins G7 leaders. US national security adviser Jake Sullivan and European Council president Charles Michel both indicated optimism about reaching an agreement soon.

The summit takes place amid political turmoil in several G7 countries, including the upcoming US presidential election and significant political shifts in the UK, France, and Germany.

Western officials note that the agreement on supporting Ukraine with frozen assets would demonstrate G7 unity in defending Kyiv and maintaining broader foreign policy priorities.

Most of the frozen Russian sovereign assets are held in the EU. The deal came together after EU and G7 member states, particularly Italy, France, and Germany, opposed a US proposal that EU-generated earnings back a US-issued loan. Brussels emphasized that each country must assume part of the risk due to uncertainties about the indefinite continuation of sanctions.

The World Bank is expected to assist in disbursing the US portion of the loan package, according to sources familiar with the talks.