How Biden Plans to Rebuild Ukraine – and Make Russia Pay For It | National News

The heads of the leading industrialized nations announced Wednesday at the G7 Summit in Italy that they have approved a long-gestating plan to use Russian assets frozen by Western banking institutions to help pay for Ukraine’s war effort as well as its humanitarian needs and reconstruction.

For two years, the seven nations – the U.K., Canada, France, Germany, Italy, Japan and the U.S – have debated what to do with the nearly $300 billion in Russian funds sitting in Western banks that was immobilized to punish Moscow for its invasion.

Now the leaders have coalesced behind a plan, pushed by President Joe Biden, to give Ukraine a $50 billion loan that would be backed by the interest earned on the assets, which has been set aside by the European Union.

The proposal proved to be controversial to many in the G7, who argue they would rather slowly transfer aid funds instead of providing a single massive payment, largely because the amount of the loan to Ukraine exceeds what has thus far accumulated in interest to secure it. Others worry about an undermining of faith in Western banking institutions and the potential for legal backlash from Russia.

Here’s what to know about the assets, objections from Biden’s European counterparts and why this is the new course of action:

Following Russia’s most recent invasion of Ukraine in 2022, the U.S. and its allies immediately froze whatever assets belonging to Moscow were left in Western banks. Out of about $300 billion, $5 billion was in the U.S., with the rest in Europe. The assets belong to the Russian Central Bank and were mostly in foreign currency, gold and government bonds.

The G7 leaders have spent nearly two years discussing the legality of taking the money and giving it to Ukraine as it still belongs to Moscow – even if Russian President Vladimir Putin’s government can’t access it.

Governments can generally freeze assets without issue, and the tactic has been used regularly to punish – or sanction – administrations and regimes that defy global norms. But converting such funds into assets that can be given away requires going through the legal system and getting a legal basis and adjudication in court.

To bypass this, the European Commission last month approved a plan to use earnings from funds held by Belgium-based securities depository Euroclear, which holds the vast majority of the Russian capital, to buy arms and ammunition to send to Ukraine. That action differed from the plan approved Thursday in how the money would be distributed and what it could be applied to. The G7 plan also brings the blessing of non-European members like Canada, Japan and the U.S.

The measure, passed as part of a supplemental foreign aid bill that lingered in Congress before being approved earlier this year, authorizes Biden to take the frozen Russian assets sitting in U.S. financial institutions – the principal as well as the interest – and move them to a special fund designated for Ukraine. The exact process is still being determined.

While most stakeholders agree that Ukraine aid must go out quickly, concerns from Biden’s European counterparts over the amount of money distributed, how it will be used and its legality all threatened the plan.

Scheherazade Rehman, the director of the European Union Research Center and professor of international affairs and international business at George Washington University, says the European leaders were against Biden’s plan on multiple fronts: that it might be legally questionable, that it would set a new precedent and that it could jeopardize stability for the financial markets.

She notes that several countries and global institutions – including France, Germany, Indonesia, Italy, Japan and Saudi Arabia as well as European Central Bank President Christine Lagarde think that confiscating the whole amount “sets a very bad precedent – and it’s actually a violation of sovereignty.”

“They’re afraid that it could lead to, legitimately, several issues: legal challenges from Russia or others, financial instability – which is a real possibility – and then possibly retaliatory seizures of Western assets abroad, less of a likely issue.”

Will Pomeranz, director of the Wilson Center’s Kennan Institute, adds that several lawyers and bankers are concerned about taking the assets and essentially redistributing them to Ukraine because “these assets were protected essentially when the Russians invested in these Western banks.” He adds that it will affect whether other countries will want to invest in Western banks in the future.

Rehman says other leaders instead proposed a plan where every two years they would transfer a set amount of money instead of shifting it all at once in the form of the loan. She adds that the transfer of funds would continue for the next decade or however long the war lasts.

Other leaders also did not want to use the entire amount of the assets but rather the funds that are sitting with Euroclear, she says, adding that the rest of the money is spread out and harder to access.

When it comes to exactly what the money would go toward, Rehman says the bulk of it would fund military aid and a portion will pay for the reconstruction of Ukraine.

“What the European plan is saying is that 90% of the money will be used for buying arms for Ukraine and they’ll do it through something called the EPF, which is a European peace facility. It’s an EU institutional structure to finance military aid and other military missions,” says Rehman. “So they’re going to funnel it to an official EU institution. The other remaining 10% will be used for reconstruction and what we call non lethal purchases.”

She adds there is a split to satisfy countries like Ireland, Austria, Cyprus and Malta, which are all militarily neutral.

The potential plan has already angered Moscow, with officials seeing the freezing of the assets as theft. Should the plan be adopted, Russia has already threatened to retaliate.

Russian foreign ministry spokesperson Maria Zakharova said Thursday during a news conference in Moscow that the plan “will not lead the West to anything good.”

She called the plan an “illegal initiative” that “threatens to completely unbalance the financial system and create cataclysmic crises.”

“There is enough European property and money in Russia … and inevitable retaliatory measures will be extremely painful for Brussels,” she added, referencing the EU capital.

Pomerantz says retaliation could take the form of Russia attempting to strip whatever Western assets that still remain in the country.

“The initial response will be in Western financial institutions, and we will just have to wait and see to what extent there is money left in the Russian Federation that Russia can redistribute or take hold of.”

As Russian forces make advancements on the battlefield and Ukraine support is meeting an undercurrent of political resistance among hard-line Republicans in the U.S. and elsewhere, Western leaders have been left working against the clock to hammer out a plan.

Domestically, Republicans aligned with former President Donald Trump have been outspoken in their opposition to providing Ukraine with what they describe as a blank check. His reelection could mean either an end or a dramatic reduction in U.S. aid. And some far-right parties in Europe, which gained in EU parliamentary elections, oppose additional assistance, also imperiling the future of the bloc’s aid to Ukraine.

With this in mind, Pomerantz said the plan agreed to Thursday is “much more palatable” because “the money is not coming from the West and Europe and the United States but is coming from assets that are actually in Western banks and Western financial institutions.”

He says the arrangement will also send a message to Moscow that it will be held responsible and accountable for the damage it has done to Ukraine.

Rehman adds that the plan will maximize the impact of the revenue going to Ukraine “not only in terms of actual money given for the war effort but also sending a signal to you saying we support you – and also sending a signal to Russia.”

She adds that with the November election coming up and the possibility of Trump returning to the White House, it is clear that Biden is “future-proofing” or safeguarding Ukrainian aid for the years ahead.

In recent days, Biden has announced a hefty slate of new actions pledging U.S. support for Ukraine. He recently returned from a trip to France where support for the Eastern European country remained a top priority. Biden met with Ukrainian President Volodymyr Zelenskyy as a $225 million security assistance package was announced.

Biden vowed that the U.S. is “not going to walk away from you” and publicly apologized for the months-long delay by Congress in approving additional support.

But perhaps most significantly, his administration was finalizing a 10-year pact to support Ukraine’s defense – a bold, yet largely symbolic, move that could be undone by future presidents.

“This is an agreement on security and thus on the protection of human life. This is an agreement on cooperation and thus on how our nations will become stronger. This is an agreement on steps to guarantee sustainable peace and therefore it benefits everyone in the world,” Zelenskyy said at a joint press conference with Biden.

For his part, Biden also doubled down on the lasting nature of U.S. support for Ukraine.

“We will say it again,” he said. “We’re going to stand with Ukraine.”