(Bloomberg) -- Germany is open to discussing a broad set of measures to help Ukraine rebuild once Russia ends its war, including offering EU guarantees for financing, according to government officials.
During a cabinet meeting last week, Chancellor Olaf Scholz’s ruling coalition agreed Berlin would play a constructive role in debates about how to channel billions of euros to Ukraine, one of the officials said. Sending direct national payments is another option. The subject will be high on the agenda when Group of Seven finance ministers meet in Bonn May 18-20.
The European Union plans on Wednesday to present a similar set of proposals, expected to also contain the use of loans from the bloc’s budget, guaranteed by member states, to pay Ukrainian salaries and benefits, according to the official.
Berlin’s preference would be to mobilize billions of euros via the European Investment Bank, which would then issue an EU guarantee for investors, according to the officials. They spoke on condition of anonymity due to the private nature of the talks, which are still early stage. A government spokesman and a finance ministry spokeswoman declined to comment.
The willingness to get out front and discuss such measures marks a departure for Germany. Before the pandemic, it was traditionally the EU member tightest with the bloc’s purse strings. But Scholz is attempting to repair his image after being widely criticized for initially dragging his feet on supplying Kyiv with heavy weapons and blocking an immediate ban on Russian energy imports.
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The chancellor and his center-left Social Democrats have been nudging Finance Minister Christian Lindner and his fiscally more cautious Free Democrats toward bolder financial moves to support Ukraine and cushion the domestic economy from spill-over effects. The co-governing Greens back the push.
While Lindner told reporters last week he wouldn’t support the issuance of joint EU debt, a person with knowledge of his thinking said he is open to looking into other instruments in the EU’s tool box for financial support.
Germany is also ready to consider seizing Russian central bank reserves abroad and using the money to finance the reconstruction. “We are already discussing it in the G-7 and the EU and there are proposals on the table,” Lindner said in an interview with several European newspapers.
Regarding the seizure of private assets from sanctioned Russians, Berlin sees legal hurdles. “Even if we’re dealing with Russian oligarchs, we have to respect the rule of law,” Lindner added.
Officials in both Brussels and Berlin agree that one of the first tasks is to figure out how much money will be needed. The government in Kyiv has estimated the impact of the war could reach $560 billion, including indirect losses.
The EU and its 27 member states must not end up shouldering the bill, the officials stressed, adding that Berlin wants other rich countries and international financial institutions to help. Germany is trying to convince non-European G-7 members to get on board, the officials said.
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A reconstruction facility could see the Commission, or another European institution issue fresh bonds, according to the officials. It could be either modeled after the EU’s pandemic-related SURE program based on loans for unemployment aid or the much bigger European Recovery Fund which combines grants and loans, one of them said.
The European Stability Mechanism, the European Investment Bank or the European Bank for Reconstruction and Development could play a bigger role, the officials said.
Germany views debt-financed EU grants as legally problematic, the officials said. The solution could end up being a mix of non-refundable grants for the short-term financial needs and EU-backed loans for the long-term needs, they added.
To cover Ukraine’s short-term financial needs — an estimated 5 billion euros ($5.2 billion) per month — the German government is open to extending its guarantees for the bloc’s budget if other member states do the same, one of the officials said.
Germany, which is currently holding the rotating G-7 presidency, will ensure the issue is also high on the agenda of the group’s leaders summit in Elmau, at the foot of the Bavarian alps, on June 26-28.
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