G7’s convoluted plan to aid Ukraine

The richest industrial democracies in the world, the G7, has worked out a convoluted plan to help Ukraine fight Russia. Instead of agreeing to open up their purse strings and give all the financial help for Ukraine to beat back the Russian, the G7 leaders have laid out a plan of raising a loan for Ukraine of about $50 billion by the end of the year by appropriating interest from the frozen Russia funds in the Western banks. It is a capitalist solution to fighting the war. The Western countries do not want to use up the Russian financial assets to aid the Ukrainian war effort. They want to use the interest earnings from the assets, and use that as a collateral to raise a loan for Ukraine. It is as convoluted as the swap derivatives that led to the big American investment banks falling in the 2007-08 period. It looks like that the G7 leaders seem to think of the future when the Russian assets would have to be de-frozen when the political equations with Russia were to change. So, they want to guard the assets in a manner of speaking. They also do not want Ukraine to benefit directly from the interest earned by the Russian assets to fight the war. They want Ukraine to take a loan, which the G7 wants to work out using the Russian financial assets.

The fact is that the seven rich industrialized countries do not want to give financial aid to Ukraine, nor do they want to give a loan to Ukraine like the United States for Britain in the Second World War through the Lend and Lease programme. The reason is that the rich countries are facing economic problems and challenges of their own, and they are not in a position to finance a foreign war. This became evident when US President Joe Biden had a difficult time in pushing a financial package in the form of aid through the Republican-dominated House of Representatives. France, Germany, Japan, England and Italy cannot liberally support the Ukrainian war because they are relatively smaller economies than the United States. Apart from the financial constraints that these rich economies face, there are also strategic calculations as to how far they want to push Russia because they know fully well Ukraine cannot defeat Russia on the battlefront. All the financial and military support that Ukraine got from its Western supporters has proved to be insufficient in clinching victory on the battlefront. The G7 leaders have realised that this is going to be a long-drawn war, with no end in sight. They cannot abandon Ukraine, nor can they support forever. It seems that they found a solution in facilitating a war loan for Ukraine in this roundabout fashion of utilising the frozen Russian financial assets, and create a loan based on the interest earnings. Critics of capitalism would call this the most cunning ploy for fighting someone else’s war with someone else’s money.

This $50 billion loan is not going to happen immediately. The G7 has given itself time till the end of the year as announced by G7 hostess, Italian Prime Minister Giorgia Meloni. It is basically an American plan and the rest of the rich countries’ club is willing to endorse even as each of the leaders, at least of France and Germany, President Emanuel Macron and Chancellor Olaf Scholz have their own ideas about the war, quite different from that of President Biden. There is a clear Ukraine fatigue in America, but France and Germany are thinking in practical terms of ending the war because the war is affecting their economies.