By Christian Kraemer and Francesco Canepa
KOENIGSWINTER, Germany (Reuters) – Financial leaders from the Group of Seven agreed on Friday to $9.5 billion in new aid to Ukraine and pledged enough money to keep the country’s devastated economy afloat as long as he fights against the Russian invasion.
Finance ministers and central bank governors from the United States, Japan, Canada, Britain, Germany, France and Italy – the G7 – have said their support for Ukraine in 2022 would be $19.8 billion so far. The German finance ministry said the total included $10.3 billion already pledged or disbursed earlier.
Of the new funds, the United States will provide $7.5 billion in grants, Germany an additional $1 billion in grants, and the remaining $1 billion will be covered by other G7 countries in the form of guarantees and loans. , said the German ministry.
“We will continue to support Ukraine throughout this war and beyond and we stand ready to do more if necessary,” the G7 said in a statement after the two-day meeting outside. from the German city of Bonn.
Ukraine estimates that it needs about $5 billion a month to keep civil servants’ salaries paid and the administration running despite the daily destruction wrought by Russia.
In addition to G7 aid, the European Union is to offer 9 billion euros ($9.50 billion) in loans to Ukraine and the European Bank for Reconstruction and Development and the International Finance Corporation are to provide an additional $3.4 billion in loans.
The G7 also called for support for Ukraine’s long-term reconstruction and recovery, calling it “massive joint efforts” that will need to be closely coordinated.
Economists’ estimates of the cost of rebuilding Ukraine vary widely between €500 billion and €2 trillion, depending on assumptions about the duration of the conflict and the scale of the destruction.
German Finance Minister Christian Lindner told a press conference after the meeting that the G7 had discussed the possibility of confiscating Russian assets to fund Ukraine’s reconstruction, but there was no yet to conclude. “It’s an option that still needs to be considered,” he said.
RUSSIAN ENERGY EDGES
The war has been a game-changer for Western powers, forcing them to rethink their decades-old relationship with Russia not only in terms of security, but also energy, food and global supply alliances, from microchips to rare earth.
The G7 discussed proposals to reduce Russia’s revenue from energy exports, such as a phased embargo proposed by the European Union, the formation of a cartel of buyers to cap Russian crude prices and the imposition of import duties on Russian oil.
The latter was launched by US officials as a way to limit Moscow’s oil profits while keeping supplies of Russian crude on the market to avoid price spikes.
“Nothing is really crystallized like an obvious strategy,” US Treasury Secretary Janet Yellen said of those talks.
Another G7 official said price caps and tariffs were problematic because producers had little incentive to comply and consumers could end up bearing the brunt of additional costs.
Taming the Beast of Inflation
G7 policymakers also discussed the global inflation spike exacerbated by the war in Ukraine, which also caused a marked slowdown in economic growth, raising the specter of stagflation – the dreaded 1970s combination of increases persistent price trends associated with economic stagnation.
Lindner said inflation was a huge risk and needed to be quickly brought down to 2%, while German central bank governor Joachim Nagel said negative interest rates were a thing of the past. The G7 statement also said rates would rise, but in a way that would not destroy growth.
“G7 central banks … will calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner, ensuring that inflation expectations remain well anchored, while ensuring to preserve recovery,” the G7 said.
($1 = 0.9472 euros)
(Additional reporting by Jan Strupczewski and Leigh Thomas; Writing by Jan Strupczewski; Editing by Tomasz Janowski)