G7 finance ministers mull plan to issue debt backed by frozen assets

Good morning from Florence, and the annual State of the Union conference at the European University Institute.

Today, our correspondents at the meeting of G7 finance ministers preview the discussion on plans to leverage Russian assets for Ukraine, and I bring you a Polish-Greek pitch for a joint EU air defence shield.

Getting creative

G7 finance ministers have gathered on the shores of Italy’s Lake Maggiore to discuss leveraging profits from immobilised Russian reserves for Ukraine, write Paola Tamma and Claire Jones.

Context: The US has been pushing to issue debt backed by the future value of profits arising from Russian reserves blocked under sanctions in the west. EU members of the G7 and Japan have warmed up to the plan as a way to secure aid for Kyiv ahead of US elections in November.

US treasury secretary Janet Yellen told the FT in an interview that she hoped finance ministers would support the idea.

“If there is broad-based support here about this general approach, as being a constructive one, we’ll try to work on several of the key details over the next several weeks,” Yellen said. G7 leaders are due to meet in mid-June, when a final deal could be clinched.

But key details still need to be resolved, officials said. These include who would issue the debt — the US alone or the G7; how would it be backed — through state guarantees or via the underlying assets; and how would it be repaid in case the future profits do not materialise.

Yellen conceded that not everything was clear yet, including where the funds would go. She said they would likely not go directly to Ukraine, but to a European facility or the World Bank before being transferred to Kyiv.

Even the amounts and the timeline are still unclear, as this would heavily depend on the development of interest rates. The US has said such a scheme could see $50bn disbursed to Ukraine by the summer.

European officials are also sceptical about the chances of issuing debt before the fall, including because the scheme would require unanimous backing by all EU countries.

“It’s not easy. There is some hesitancy from central banks,” said Italy’s finance minister Giancarlo Giorgetti. “But we must work hard on it and be creative,” he added.

The mood in Stresa is generally optimistic, and there’s consensus on the need to mobilise funds for Ukraine. “It’s important that Russia realises that we will not be deterred from supporting Ukraine for lack of resources,” Yellen said in a speech.

Chart du jour: Shrinking

EU births fell to levels forecasters had not expected for another two decades, suggesting Europe’s peak population could be hit next year.

EU ‘Iron Dome’

The prime ministers of Poland and Greece have called for the EU to develop and finance a shared “European air defence shield”.

Context: Russia’s full-scale invasion of Ukraine has sparked a sea-change in EU defence thinking, including EU funding for weapons sent to Kyiv, joint funding for European defence projects and talks on how to better integrate military platforms.

In a letter to European Commission president Ursula von der Leyen sent yesterday and seen by the FT, Polish Prime Minister Donald Tusk and his Greek colleague Kyriakos Mitsotakis called for “a comprehensive air defence system to protect our common EU airspace against all the incoming threats”.

Russia’s daily bombardment of Ukrainian towns, cities and critical infrastructure has made air defence against bombs, missiles and aircraft a key requirement for military planners, but the systems are expensive, slow to manufacture and few EU countries possess significant amounts.

Describing a lack of a joined-up air shield as a “major vulnerability in our security”, the two leaders said that such a project would “send a clear signal that Europe was united and determined to act in self-defence”.

“In this new geopolitical era, our economic and monetary union must be accompanied by a strong defence union,” they write.

Von der Leyen, who is running for a second term as president, told a European Elections leaders’ debate hosted by the FT and Bruegel on Tuesday that she “would advocate for example for an air defence shield as a common European project”.

The proposal should be discussed at a summit of EU leaders next month, Tusk and Mitsotakis suggested.

What to watch today

1. Nato parliamentary assembly opens in Sofia, Bulgaria.

2. EU chief diplomat Josep Borrell speaks at the State of the Union conference in Florence, at 15.45.

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