Staff Report
Exploring innovative avenues to bolster Ukraine’s financial resilience amid ongoing conflict, the United States has put forth a proposal suggesting leveraging frozen Russian assets held in the EU to potentially yield tens of billions of euros for Kyiv’s defense efforts.
With the war entering its third year and the need for substantial funding to sustain defense operations in 2024 estimated at €34.45 billion, the US proposal aims to harness the substantial financial resources represented by the €260 billion worth of Russian assets immobilized since the conflict erupted in February 2022.
Divergent approaches between US and EU policymakers emerge regarding the utilization of these frozen assets to support Ukraine. While Washington advocates for direct allocation of funds to Kyiv for defense and reconstruction purposes, EU officials advocate for utilizing only the generated profits from these assets to ensure compliance with international law and mitigate financial market disruptions.
In pursuit of maximizing the potential benefits for Ukraine, the US proposes leveraging the future interest stream of immobilized assets through the issuance of bonds or loans. This strategy could potentially unlock €30-40 billion over the next decade, contingent upon prevailing interest rates.
However, concerns linger regarding the fate of bonds secured against future interest payments should the conflict end prematurely, leading to the return of assets to Moscow. Potential solutions, such as G7 state-backed guarantees, are being considered to mitigate such risks and ensure the stability of financial arrangements.
As discussions progress, Kyiv faces the urgent task of restructuring its $20 billion (€18.77 billion) debt owed to private investors. The proposal is slated for deliberation at the upcoming spring meetings of the World Bank and IMF in Washington, with the US anticipating a decision at the G7 leaders’ annual summit in June.
