After months of prevarication and foot-dragging over the utilization of immobilized Russian assets — mostly by old-guard EU states — the G7 finally appeared to have agreed to a new $50bn financing facility for Ukraine on June 13, the Enhanced Revenue Acceleration Loan (ERAL.)
Note that this latest agreement comes after more than 26 months after more than $300bn in Central Bank of Russia (CBR) assets were frozen in Western jurisdictions.
Since then, European bureaucrats, Russian lobbyists, and Western business interests have fought tooth and nail to ring-fence these assets so that they cannot be used to fund Ukraine’s defense and post-war reconstruction.
Various excuses have been used not to avoid what is morally right, and now military and financially imperative. Few actually withstand scrutiny. There are sound legal grounds for seizing and allocating these assets to Ukraine.
Concern over risks to G7 reserve currency status and potential Russian retaliation are overstated. But false narratives about the impediments have nonetheless stalled progress. Instead, the EU finally agreed to a much less radical plan earlier this year by proposing to allocate interest on these assets to Ukraine from February 2024 onwards.
But this would have amounted to only a few billion euros a year, which pales into insignificance compared to Ukraine’s annual wartime funding needs which run in excess of $100 billion annually.
This looked like EU window dressing and an excuse not to do what is needed. The momentum changed only when, in December-January, the $61bn US funding package became stuck in the US Congress. Many Europeans feared this was the harbinger of a future Trump presidency, where, at best, Ukraine aid would be dribbled out, and the continent would face the consequences of Ukrainian defeat (think mass movements of refugees, belated but hugely expanded defense budgets, and a general air of panic.)
Europe’s bigger powers, who had previously worried about legal niceties, began to eye the frozen assets with renewed interest. Hence the focus on the ERAL, which is a hybrid instrument that aims to use the longer-term interest stream from immobilized Russian assets to provide an upfront $50bn loan to Ukraine. The loan structure looks complicated, so much so that it might have been easier just to cut to the chase and seize and allocate the underlying assets.
As is, it might be difficult to crystallize the new ERAL before year end — the very point at which Ukraine needs renewed funding. And even then, while a $50bn clip is certainly useful it only covers at best about six months of Ukraine’s funding requirements, and one third of what would likely be required to return it to the offensive in the war.
And remember the uncertainties of a Trump presidency still loom large. Will funding fall off a cliff following the new president’s tabling of his “peace in 24 hours” plan? Will Trump even meet US commitments to NATO? Perhaps another Trump will emerge, but for now the only certainty of a second Trump term is uncertainty for Ukraine.
As has been a near-constant theme throughout this war (with Leopard tanks, F16s, HIMARS, etc.), the West will likely do the right thing only when the alternative is even worse.
Ultimately, the democracies will be hauled to the only reasonable conclusion by events, recognizing that every last ruble of the $300bn-plus in Russian taxpayers’ money held in the West be transferred to the victim of its aggression.
This is the right outcome in every sense. It’s the fundamental of all law; the aggressor pays for the damage done and the crimes committed.
Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management. He is an Associate Fellow at Chatham House on their Russia and Eurasian program. The views expressed here are his own.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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