So, What's the Problem Here?
- Russia should cover the costs of safeguarding itself against its own military forces.
Recent years have seen significant support from Western countries, including Germany, towards Ukraine. Germany's contribution to military aid alone totals 28 billion euros, covering both delivered and promised supplies. However, the issue arises due to Germany's already substantial future commitments, causing the budgeted funds to fall short, leaving no room for additional aid. This leaves three potential options: no new aid, which contradicts our promises towards Ukraine; obtaining fresh funds, which may necessitate maintaining the debt brake; or, as the situation suggests, exploring creative solutions. And this is where the frozen Russian funds come into play.
Where Does This Magic Money Come From?
Following Russia's invasion of Ukraine in February 2022, approximately 210 billion euros from Russia's central bank have been frozen in the European Union. Additionally, dozens of billions have been denied access in the USA and other countries. Although the legal seizure of these funds and their use as advance reparations for Ukraine have proven challenging, the generated interest can still be accessed. For instance, in the past year, the EU alone has earned 4.4 billion euros in interest on these funds.
What Should We Do With All These Billions?
The challenging part lies in the allocation of these billions. As Federal Finance Minister Christian Lindner put it, this involves using a "smart instrument." The interest generated won't be handed over directly to Kyiv but will be used to service a 50 billion dollar loan to Ukraine. At the end of the day, Ukraine will receive the required funds, and its supporters, at least for the time being, will be debt-free. Not only Europeans, but also G-7 states, including the USA, are part of this plan. The aim is to make this a reality within a few months.
Is It Really That Simple?
While the idea sounds attractive, the practical challenges are significant. One such challenge involves EU countries like neutral Austria, who are hesitant to contribute to Ukraine's military support. The EU proposes to make only 90% of the generated interest available for military aid, with the remaining 10% reserved for direct financial aid to Ukraine to manage legal disputes expected to arise.
Is Germany Shirking Its Responsibility Through This Scheme?
Despite the intriguing nature of this proposal, it's important to remember that the ongoing conflict in Ukraine cannot be solely resolved with funds from Russia. The federal government acknowledges this fact. However, winning the upcoming state elections in the east becomes increasingly challenging with new aid promises, and a subtle shift in the traffic light coalition's debate might prove timely. Ultimately, it will depend on whether Germany stands by its promises and continues to support Ukraine as long as aid is needed.
The European Union's proposal to use the interest generated from the frozen Russian funds to service a loan to Ukraine, rather than directly providing aid, highlights the complexity of the situation for Germany. Despite reserving 10% of the interest for direct financial aid, EU countries like neutral Austria may be hesitant to contribute to Ukraine's military support.
Germany's continued support for Ukraine, even as it navigates its own budgetary constraints and political considerations, is crucial in maintaining its commitment to its allies. The use of these frozen funds, although not a sole solution, can provide a temporary reprieve in meeting its military aid obligations.
