How the G7 conjured up $50 billion for Ukraine
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Illustration: Sarah Grillo/Axios
The $50 billion Ukraine is about to receive from the G7 doesn't just represent a military lifeline; it's also a very carefully constructed diplomatic and forensic achievement.
Why it matters: The agreement marks an escalation of the financial war being waged on Russia by the West — and opens up a risk of retaliation that could hit the heart of the Western financial system.
Between the lines: The G7 heads of state are being very careful not to seize Russia's foreign reserves — the money Russia invested in Western assets like cash and bonds. Those reserves have been frozen by the West but still belong to Russia.
- The interest income those reserves are throwing off, however, does not belong to Russia.
Where it stands: Russia's frozen foreign reserves currently stand at about $300 billion. Most of that money — about $200 billion — is sitting in accounts at Euroclear, a Belgian securities depository.
- Euroclear doesn't own the money, but it does receive interest on it. That interest is being taxed by the Belgian government, and in turn, the vast majority of those taxes are being remitted to Ukraine.
- Much of the rest of Euroclear's interest income will be used to repay the $50 billion, which is being loaned to Ukraine by the U.S. and others.
What's next: The reserves will remain frozen so long as the war continues. After that, the G7 will ensure that any agreement to unfreeze the reserves would be accompanied by some kind of reparations payment from Russia to Ukraine, which would be enough to pay back the balance of the loan.
The catch: The structure of this loan still risks precipitating retaliation from Russia and its allies, who could try to seize Euroclear assets in Russia, China, and elsewhere that total tens of billions of dollars.
- Given the centrality of Euroclear to the global financial architecture, that could cause a host of unpredictable consequences.
The bottom line: The G7 is walking a tightrope here, and the details haven't been finalized — but signs are they've managed to pull it off.
