(Reuters) - The Group of Seven (G7) rich democracies agreed in June to use proceeds from frozen Russian assets to give Ukraine $50 billion in loans, aiming to ensure Kyiv can continue its fight against Russia's invasion and to signal Western resolve to Moscow.
The plan was agreed partly as a way of ensuring aid keeps on flowing to Ukraine even if former U.S. President Donald Trump returns to the White House and pushes to stop support for Kyiv.
The G7 countries - Britain, Canada, France, Germany, Italy, Japan and the United States - have yet to agree how to execute the plan, in talks also involving the European Union, where most of the Russian assets frozen as a result of the war are held.
Germany, which has just emerged from months of wrangling over how to bring its budget back in line with its constitutional spending rules, plans to halve its own aid to Ukraine next year, betting the G7's loan plan will make up the shortfall.
WHERE WILL THIS MONEY COME FROM?
Some 260 billion euros ($287 billion) in Russian assets held in the West, such as central bank reserves, have been frozen under sanctions imposed over Moscow's invasion of Ukraine in February 2022.
Around 190 billion euros of the assets are held in Euroclear, a Belgium-based central securities depository. The United States holds about $5 billion of such assets.
The European Union has already adopted a plan to skim profits from the assets and use them to fund arms and other aid for Ukraine. But Washington has proposed to "front load" the revenue from the assets by giving Ukraine a big lump sum now as a loan.
Officials say EU leaders agreed to the idea in part because it reduces the chances of Ukraine being short of funds if Trump returns to the White House or the U.S. Congress holds up funding, as it did for months with its most recent aid package.
HOW WILL THE LOANS WORK?
G7 members and the EU will issue the loans, which will be backed by future interest on the frozen Russian assets.
They are to be repaid by Ukraine using either the interest or reparations by Russia.
Officials from G7 countries estimate they will be able to call upon some 2.5 billion to 3.5 billion euros in interest every year from the assets to repay the loans.
HOW MUCH WILL EACH G7 MEMBER LEND TO UKRAINE?
The precise amounts must still be determined.
A senior U.S. official said Washington had authorization from Congress to provide up to $50 billion in loans to Ukraine, but expected other countries to step up with their own loans, reducing the amount the U.S. would have to lend.
EU officials told Reuters that the European Union - which includes G7 members France, Germany and Italy - could provide about half the $50 billion. Canada said in June that it stood ready to provide $5 billion in funding.
WHEN WILL THE MONEY ARRIVE?
In June, two sources told Reuters that cash would arrive by the end of 2024, although some could still flow beyond that, depending on Ukraine's ability to absorb and disburse the funds.
The German government has said it expects to begin using the instrument in 2025.
WHAT IF THE ASSETS ARE NO LONGER FROZEN?
The EU sanctions that froze the assets come up for renewal every six months, requiring the approval of all 27 EU members.
That has raised the prospect that a single EU country - such as Hungary, which maintains close ties with Moscow - could block the renewal at some point.
EU officials say they are exploring options to reduce this risk, such as making renewals less frequent or having backup national legislation in Belgium to keep the assets frozen.
If Ukraine and Russia reach a peace deal, Western officials anticipate the assets could form part of reparations to Ukraine so they could be used to repay the loan.
WHAT HAS RUSSIA SAID?
Russian President Vladimir Putin has described the West's seizure of Moscow's assets as "theft" and said it would not go unpunished.
Foreign Ministry spokesperson Maria Zakharova said in June that Moscow's response to the G7 scheme would be very painful for the European Union.
The EU has declared that interest generated from the assets are "windfall" profits that do not belong to Russia.
($1 = 0.9048 euros)
(Reporting by Andrea Shalal, Andrew Gray, John Irish, Rachel More, Andreas Rinke, Holger Hansen, Elizabeth Piper and Elizabeth Pineau; Editing by Alex Richardson and Conor Humphries)
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