(Bloomberg) -- The US told the European Union that it will contribute $20 billion to a massive Group of Seven-led Ukraine aid package if the bloc tweaks its Russian sanctions regime as planned to make it more predictable.
Even if the EU doesn’t make the changes to its sanctions — which would extend the time before the measures come up for review by member states — the US would still contribute to the planned $50 billion package, but with a lower amount, according to people familiar with the discussions in the EU.
The G-7 in June agreed in principle to provide Ukraine with the non-refundable loan, which would be repaid using the profits generated by about $280 billion in frozen Russian central bank assets, most of which are held in Europe.
A US official said Washington fully intends to participate in the $50 billion commitment to Ukraine and that the scale of its contribution will depend on what assurances the EU can give that the Russian assets will remain immobilized.
The US and the EU had initially agreed on contributing similar amounts of about $20 billion each, until Washington demanded a more durable sanctions regime from Europe to ensure the windfall profits remain available, as it requires a unanimous renewal every six months.
The EU is in the process of adjusting its sanctions on the immobilized assets so they only need to be renewed every 36 months, per the US demand. The bloc has also proposed contributing as much as €35 billion ($39 billion) from its collective budget in the event the US doesn’t join the loan.
That latest proposal for the EU to boost its share received push-back from the bloc’s G-7 members — Germany, France and Italy — during a meeting of EU envoys in Brussels on Wednesday, said the people, who spoke on the condition of anonymity.
The European Commission, the EU’s executive arm, stressed that the goal was to secure the US participation by amending the sanction regime so that the plan remains a G-7 initiative, according to the people. The commission urged member states to complete the sanction reform, which requires unanimity.
Hungary, which has often delayed or blocked EU efforts to support Ukraine, had proposed postponing any decision on the immobilization of Russian assets until after the US election on Nov. 5.
The commission told member states that the US could join the initiative even after the election, but added that the bloc should complete the legislative work, which also requires European Parliament approval, by the end of October, said the people.
G-7 nations are expected to complete their pledges in a ministerial meeting on Oct. 25, according to one person. EU leaders are scheduled to meet on Oct. 17-18 when Ukraine support will likely to be discussed.
When the new mechanism is in place, the EU will cease its current process of using proceeds from the frozen Russian assets to finance military aid to Ukraine.
The new loan, which is expected to be disbursed in various tranches starting in early 2025, will be in addition to other aid packages, including a €50 billion EU financial plan made up of grants and loans for the period between 2024 and 2027.
--With assistance from Viktoria Dendrinou.
©2024 Bloomberg L.P.
