By Leika Kihara and Francesco Canepa KOENIGSWINTER, Germany (Reuters) -Group of Seven financial leaders are likely to agree on Thursday and Friday on around $15 billion to help Ukraine pay its bills in coming months, but surging inflation, climate change, supply chains and the impending food crisis are also on the agenda. Finance ministers and […]
Money for Ukraine tops G7 agenda; inflation, food a concern
By Leika Kihara and Francesco Canepa
KOENIGSWINTER, Germany (Reuters) -Group of Seven financial leaders are likely to agree on Thursday and Friday on around $15 billion to help Ukraine pay its bills in coming months, but surging inflation, climate change, supply chains and the impending food crisis are also on the agenda.
Finance ministers and central bank governors of the United States, Japan, Canada, Britain, Germany, France and Italy – the G7 – are holding talks as Ukraine, invaded by Russia on Feb. 24, is struggling to fend off the attack and is running out of cash.
“We have to secure the liquidity of the Ukrainian state,” German Finance Minister Christian Lindner, whose country holds the rotating presidency of the group, told reporters on entering the talks. Lindner said he was optimistic the group would provide the funding Ukraine will need over coming months and pledged Germany would provide 1 billion euros in grants.
“The war in Ukraine … also entails additional risks for the development of the world economy … inflation, but also the lack of recovery after the pandemic. Therefore, we will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios,” Lindner said.
The war is a game-changer for Western powers, forcing them to rethink decades-old relations with Russia not only in terms of security, but also in energy, food and global supply alliances from microchips to rare earths.
International Monetary Fund Managing Director Kristalina Georgieva said she was “getting more optimistic” about a swift funding deal for Ukraine that will provide about $5 billion a month for the next three months and allow Kyiv to avoid “terrible, terrible damage” from hyperinflation.
A G7 official present at the talks said the $15 billion was meant to keep the country running in May, June and July and that the final headline number might be higher because it could include credit lines from multilateral development banks.
Ukraine estimates it needs such amounts to keep public employees’ salaries paid and the administration working despite the daily destruction wrought by Russia.
More broadly, the G7 policymakers are also wrestling with the question of how to contain inflation and increase sanctions pressure on Russia without causing recession.
More and more officials bring up the term “stagflation” – the dreaded 1970s combination of persistent price increases coupled with economic stagnation.
SHORT-TERM CASH, LONG-TERM REBUILDING
The European Commission offered on Wednesday to provide up to 9 billion euros ($9.44 billion) in loans to Ukraine, financed from EU borrowing guaranteed by EU governments, to cover Kyiv’s needs until the end of June.
Japan on Thursday pledged to double its aid for Ukraine to $600 million to help it cover its near-term needs.
The EU executive also proposed to set up a fund of unspecified size of grants and loans for Ukraine, possibly jointly borrowed by the EU, to pay for post-war reconstruction.
Economists’ estimates of the cost of rebuilding Ukraine vary widely between 500 billion euros and 2 trillion euros ($524 billion to $2.09 trillion), with a lot depending on the length of the conflict and the scope of destruction.
With sums of such magnitude, the EU is considering not only a new joint borrowing project, modelled on the pandemic recovery fund, but also seizing the now frozen Russian assets in the EU, as sources of financing.
Some countries like Germany, however, say that the idea, though politically interesting, would be on shaky legal grounds.
U.S. officials emphasise it is too soon to map out financing for a massive rebuilding plan for Ukraine and Washington wants the discussions to focus on Kyiv’s immediate budget needs over the next three months.
($1 = 0.9550 euro)
(Reporting by Paul Carrel, Chirstian Kraemer, Leigh Thomas, Francesco Canepa, Leika Kihara, David Lawder and Jan StrupczewskiEditing by Matthew Lewis and Tomasz Janowski)