U.S. and Europe Move Closer to Using Russian Assets to Help Ukraine

The United States and Europe are coalescing around a plan to use interest earned on frozen Russian central bank assets to provide Ukraine with a loan to be used for military and economic assistance, potentially providing the country with a multibillion-dollar lifeline as Russia’s war effort intensifies.

Treasury Secretary Janet L. Yellen said in an interview on Sunday that several options for using $300 billion in immobilized Russian assets remained on the table. But she said the most promising idea was for Group of 7 nations to issue a loan to Ukraine that would be backed by profits and interest income that is being earned on Russian assets held in Europe.

Finance ministers from the Group of 7 will be meeting in Italy later this week in hopes of finalizing a plan that they can deliver to heads of state ahead of the group’s leaders meeting next month. The urgency to find a way to deliver more financial support to Ukraine has been mounting as the country’s efforts to fend off Russia have shown signs of faltering.

“I think we see considerable interest among all of our partners in a loan structure that would bring forward the stream of windfall profits,” Ms. Yellen said during her flight to Germany, where she is holding meetings ahead of the Group of 7 summit. “It would generate a significant up-front amount that would help meet needs we anticipate Ukraine is going to have both militarily and through reconstruction.”

For months, Western allies have been debating how far to go in using the Russian central bank assets. The United States believes that it would be legal under international law to confiscate the money and give it to Ukraine, but several European countries, including France and Germany, have been wary about the lawfulness of such a move and the precedent that it would set.

Although the United States recently passed legislation that would give the Biden administration the authority to seize and confiscate Russian assets, the desire to act in unison with Europe has largely sidelined that idea.

This month, European Union nations agreed in principle that they would be willing to use 90 percent of the profits to buy arms for Ukraine through the European Peace Facility, an E.U. structure to finance military aid and its own military missions. The remaining 10 percent would go to reconstruction and nonlethal purchases, to satisfy countries like Ireland, Austria, Cyprus and Malta, which are militarily neutral.

About 190 billion euros of Russian central bank assets are held by Belgium’s central securities depository, Euroclear. The assets are generating about €3 billion a year of interest that could be transferred to Ukraine.

However, using the interest as the basis for a loan could provide Ukraine with a much larger amount of money — potentially as much as $50 billion — up front. The method for delivering the money still needs to be worked out. The World Bank or another international institution could serve as an intermediary.

It also remains unclear how the loan would be repaid if the war ended before the bond matured or if interest rates fell, making the proceeds on the assets insufficient to repay the loan.

Such details are expected to be debated among the finance ministers when they gather later this week. They hope to be able to provide Ukraine with additional funds this summer.

Ms. Yellen said that allocating the money to Ukraine was critical for showing Russia that it could not outlast Western support.

“I think Russia is playing a waiting game and they’ve had the view that the U.S. and our partners are losing the will to support Ukraine over an extended time,” Ms. Yellen said. “Showing that we do have the means of translating earnings on the frozen assets into a stream of support for Ukraine, I think, is an important way to demonstrate that we’re not about to fold — we’re going to be able to help Ukraine.”