(Bloomberg) -- The Group of Seven countries are converging on a US plan to squeeze value out of frozen Russian assets, a move that would secure as much as $50 billion in critical financing for Ukraine and help shield it from political shifts on both sides of the Atlantic.

Officials familiar with the discussions say G-7 governments are all now broadly supportive of a US proposal to leverage future revenue generated from about $280 billion in Russian central bank funds — most of which lies immobilized in Europe — to back the massive loan to Kyiv. 

Finance ministers from the G-7 economies are discussing the matter during a meeting this week in Stresa, Italy, with the aim to agree on a set of options for their leaders for a final decision when they meet on June 13-15.

While the G-7 is closing in on the broad strokes of the agreement, many critical details are still being negotiated and would need to be agreed, according to the people, who asked not to be identified as the talks are private and ongoing.

Those include the exact mechanism of the loan, the size of the amount that will be raised upfront and, crucially, how the risk will be shared among the participating parties, they said. 

Still, one thing where there is consensus among the G-7 is that more financing for Ukraine will be needed. 

With the war showing no signs of abating and Russia’s military offensive gaining ground, focus has shifted on securing medium-term assistance for Kyiv and sending a strong signal to Moscow that G-7 allies are committed to supporting Ukraine for as long as it takes.

At stake is not just ensuring Ukraine can continue to fund its defense and service its debt but also that it will be able to receive sustainable financial support through 2025 and beyond. 

The money raised from such a plan could be used to assist Ukraine with reconstruction and military needs, US Treasury Secretary Janet Yellen said Thursday. She added that the amount raised would help Ukraine not just through 2025 but further down the line.

“Our hope would be to show that those assets do provide a viable stream of support in the years to come,” she told reporters ahead of meetings with her G-7 counterparts. “This is an assured source of financing and it’s important that Russia realize that we will not be deterred from supporting Ukraine for lack of resources.”

Key Issue

Italian Finance Minister Giancarlo Giorgetti struck a similarly positive note, saying he is “optimistic” on this “key issue” and that the hope is to present the G-7 leaders with a plan.

“The problem is what legal basis we have,” he told reporters. “It’s not simple, we’re working on it we need to be a bit creative. Currently legally the idea is to use the interest to repay the loans we give to Ukraine. The issue is we have to see if that’s feasible.”

His German counterpart, Christian Lindner, also highlighted that “there are many unresolved issues, many unanswered questions here.”

“Now is an opportunity to talk about it,” he said. “However, I don’t expect any decisions to be made, the matter is too complex for that, there are still far too many questions open.”

The EU has separately already agreed to provide Ukraine twice a year with the profits from the frozen funds as they are generated. The US has been pushing to leverage those profits to be able to provide Kyiv with more money up front, with the future proceeds covering that outlay. The frozen assets are expected to raise about $5 billion a year.

Should the G-7 come to an agreement, that accord would replace the EU initiative.

An advantage of front-loading the proceeds from the assets would be to secure the benefit for Ukraine regardless of political uncertainty surrounding the presidential election in the US. Divisions in Washington have already made it difficult for President Joe Biden to extend more aid to Ukraine, and his challenger, former President Donald Trump, has expressed skepticism about support for the embattled country. 

Stumbling Blocks

Still, officials caution that a lot of key details still need to be agreed given uncertainties surrounding the assets’ continued immobilization and the various technical aspects of this plan. 

Should the war come to an end and some kind of peace settlement is struck with Russia, with Moscow agreeing to pay for Ukraine’s reconstruction, that would raise questions over whether the assets would remain frozen and, if not, what guarantees would be provided for repaying the loan.

Another uncertainty may stem from the fact that the EU has to renew its decision on keeping the assets immobilized every six months if the initiative is structured as a sanction, a procedure that would require unanimity. While unlikely, that raises the risk that a single EU nation could throw loan repayments into doubt by blocking a continued freeze. 

The European Central Bank and EU member states are also concerned about protecting Belgian-based Euroclear, which holds most of the assets, from any financial risk, for example from Russian lawsuits or possible retaliation from Moscow. Under the EU’s current initiative the clearing house retains the profits generated before Feb. 15 to cover those scenarios and a mechanism has been put in place to hold back more funds should the risks prove greater than anticipated.

--With assistance from Alberto Nardelli, Jorge Valero, Alessandra Migliaccio, Kamil Kowalcze, Zoe Schneeweiss and Caroline Connan.

(Updates with Giorgetti, Lindner starting in 11th paragraph.)

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