G7 Agrees to $50 Billion Ukraine Loan Backed by Russian Assets. How Will It Work?

The United States and the other large Group of 7 economies agreed on Thursday on a plan to give Ukraine a $50 billion loan to help it buy weapons and begin to rebuild damaged infrastructure. The move comes at a crucial moment in the war, when Russia has the momentum on the battlefield.

The details are not fully worked out, but this is what we know.

Where will the money come from?

The upfront money for the loan will come from the United States, the European Union and other G7 countries, though the details on how much each entity contributes is being worked out.

The idea is to use the nearly $300 billion in Russian assets in the West, frozen after Moscow’s invasion of Ukraine in February 2022, as the basis for the loan. The money will be repaid over time with the profits earned from those Russian assets, about two-thirds of which are in Europe.

Many of the assets are in bonds that have matured, creating interest of, depending on the interest rate, $3 billion to $4 billion a year.

Rather than just providing Ukraine that yearly sum, which is relatively small given the war’s demands, the G7 countries agreed on the loan, which could be provided to Ukraine by the end of the year.

Ukraine’s current financial and military needs are estimated at about $100 million a year.

Which countries will contribute?

The G7 countries have agreed at the leadership level to put up the money for the loan.

The Americans have said that they will put up the entire sum but would like others to participate. A senior European official, who requested anonymity to discuss behind-closed-doors financial deliberations, said Friday morning that all this was still a matter for discussion but that at the moment, the European Union was prepared to put up half, about $25 billion to $30 billion, with the Americans and others putting up the rest. The money would come from the European Union’s financial aid budget.

The leaders of the E.U. states will have to sign off on any commitment by the bloc, the official said.

Since most of the assets are in Europe, the Europeans want to ensure that, as the proceeds are spent, European companies get a fair share, especially European arms manufacturers.

Britain, Canada and Japan, all G7 countries, have also said that they are willing to participate.

Ukraine will be the beneficiary of the profits from the Russian assets, and will not be responsible for repaying the loan.

What happens if interest rates fall?

One of the key issues is who takes responsibility for the loan if interest rates drop or if there is suddenly a peace deal that unfreezes the Russian assets.

It seems unlikely that the assets would be unfrozen, since the G7 had agreed previously that they would be used to finance Ukraine’s reconstruction after the war. Since the amount of money that will be needed to rebuild the country is at least twice the size of the frozen assets and grows as the war continues, it is unlikely that Russia will ever get those assets back.

Even so, who will guarantee the loan is vague — the liability is expected to be shared among the countries that issue it, according to two European officials close to the talks.

What will the money be used for?

The loan will go to Ukraine in various disbursements by the end of the year and will be earmarked for three main purposes, the officials said: to support Ukraine militarily, including helping it establish arms factories on its territory; to help cover the country’s budgetary deficit; and to help with the urgent reconstruction of infrastructure.

Disbursement is supposed to depend in part on Ukraine’s ability to use the money to good effect.

But how it will be disbursed and through which agencies is still being discussed, the officials said. The World Bank is one possibility, they say. Nigel Gould-Davies, a senior fellow at the International Institute for Strategic Studies who has been researching the issue, said that another question was whether Ukraine would get to decide for itself how to use the money. “Or,” as he put it, “will that be decided for Ukraine?”

“There is a great deal of detail we don’t yet know,” Mr. Gould-Davies said, noting that he would have preferred a direct seizure of the assets, which would have been simpler. But some countries and central bankers, including Christine Lagarde, head of the European Central Bank, ruled that approach out for now because it would have set a dangerous precedent.

Mr. Gould-Davies said the current plan was “suboptimal compared to full seizure.”

“It’s more complicated and requires an elaborate financial engineering that seizure would not require,” he added.

But, he acknowledged, “Given where we were a few days ago, this outcome is at the upper end of expectations.”

Ursula von der Leyen, president of the European Commission, the executive arm of the European Union, said the agreement was “a very strong message to Putin that Putin cannot outlast us, and we will stand by Ukraine as long as it takes.”

In a nod to Europeans already anxious about the cost of the war, she added: “It is not European taxpayers that are paying for the Russian damage, but it is Russia.”