STRESA, Italy — The U.S. and the EU are overcoming their differences and edging closer to an agreement to secure a massive loan for Ukraine — using Russian assets frozen in the West as collateral.
With finance ministers from the world’s seven largest economies gathering over the next two days in Italy, Washington is still pushing to win over skeptical Europeans to the latest U.S. plan, which could be worth around $50 billion. The figure is short of America’s original ambitious demand — but is still far more than the EU has agreed to, and had until recently signaled would be its limit.
Western governments have been pondering — and contesting — alternative ways to raise cash for Kyiv amid fears that existing funds are running low. Russia’s remorseless push to take more of Ukraine’s territory continues, while the possible re-election of Donald Trump to the White House in November could end substantial U.S. support for Kyiv.
Russian state assets were frozen in Europe immediately after President Vladimir Putin’s invasion of Ukraine in February 2022; they have since been invested and are earning interest. After months of disagreement, governments are converging on a plan to use this interest as leverage for a loan, according to seven officials from different countries and bodies who spoke to POLITICO on condition of anonymity due to the confidential nature of the discussions.
No immediate deal
Talks will take place during a meeting of G7 finance ministers in Stresa, a picturesque town on Lake Maggiore in northern Italy, although officials are curbing expectations of an immediate deal.
Using frozen assets “is an assured source of financing,” U.S. Treasury Secretary Janet Yellen, who has been pushing her European counterparts on the issue for months, told reporters on Thursday. “It’s important that Russia realize that we will not be deterred from supporting Ukraine for lack of resources.”
In a sign the sides are coming together, French Finance Minister Bruno Le Maire said on Wednesday that he welcomed “the evolution of the American position,” which he described as now “in line with international law.”
That’s key because Paris had said the original American idea, to seize the assets in their entirety — which could have been worth some €250 billion — was legally risky.
Yellen said she hoped the talks in Stresa might pave the way for a formal agreement during a mid-June meeting of G7 leaders in Puglia, Italy, although important technical issues will have to be resolved before then.
But for all the convergence, a deal is still far from done. European officials who oppose Washington’s plan note that most of the frozen assets are held on their side of the Atlantic, meaning that any fallout would hit Europe harder than the U.S. Officials also stress that $50 billion is a broad estimate.
Skin in the game
The U.S. and Europe’s most powerful capitals have long been at odds over plans to use over €250 billion in Russian assets that have been immobilized in the West to support Ukraine. Washington backs confiscating the assets altogether, while the EU’s largest countries — Germany, France and Italy — have avoided the idea, fearing it would create financial volatility in the eurozone and leave them open to legal action.
Europe also has more skin in the game because the bulk of Russia’s frozen assets are held in the Brussels-based securities depository, Euroclear.
The two sides are now climbing down from their initial posturing in a bid to strike a deal.
The EU this week signed off on a plan to use 90 percent of the profits generated from frozen Russian assets in Europe, about €3 billion, to buy weapons for Ukraine.
“We support the EU’s decision to utilize the windfall profits from these assets, but we must also continue our collective work on more ambitious options,” Yellen said.
Under the compromise proposal, the U.S. would use the €3 billion annual proceeds to pay back a much larger loan, according to multiple officials with knowledge of proceedings.
“We will work on [the U.S. proposal] with an open and constructive approach to reach a goal on this fundamental issue of financial support to Ukraine by the end of the Stresa G7,” Le Maire said.
Several officials said important elements of the U.S.-led plan — starting with the size of the loan — will have to be defined in Stresa, which hosted a conference in the 1930s at which European nations ganged up on Nazi leader Adolf Hitler.
“I’m committed to working with my colleagues to present concrete options to leaders as we look toward the Apulia Summit,” Yellen added.
European officials are keen to sketch out a backup plan to pay back the interest if the war ends and the assets are handed back to Russia.
A potential workaround is for G7 countries to jointly guarantee the loan, but this idea is clouded by legal uncertainty. Yellen, however, downplayed those concerns on Thursday, suggesting that any peace agreement to end the war could address Russian compensation to Ukraine and provide for a repayment of the G7 loan.
A European Commission official acknowledged that the gap between the EU and the U.S. positions had narrowed greatly in recent months, but said that fundamental issues remained to be settled.
One sticking point is that the EU fears Washington’s proposal might clash with the bloc’s existing plan to use the profits from the assets to buy weapons for Ukraine.
“There is a risk of overlap … we’re talking about the same money, except one would be given away directly and the other would be used to issue more debt,” a second Commission official said.
The U.S. Congress last month gave President Joe Biden the legal authority to confiscate outright the $5 billion to $8 billion in Russian assets held in the U.S., though the administration has stressed they want to act in concert with G7 and European allies on the issue.
A bipartisan group of lawmakers said last week that they supported the Biden administration’s approach to finding “creative mechanisms” for using the assets held in Europe.
Barbara Moens contributed to this article from Brussels