G7 finance meeting set to be dominated by reconstruction of Ukraine

G7 finance ministers are meeting in Germany on how to help Ukraine pay its bills, with reconstruction after the war, surging global inflation, climate change, supply chains and the impending food crisis high on the agenda.

Finance ministers and central bank governors from the United States, Japan, Canada, Britain, Germany, France and Italy - the G7 - will hold talks in Germany this Thursday and Friday as Ukraine struggles to fend off Russia's invasion, launched on 24 February. 

The Ukraine war is a game-changer for Western powers because it forces them to rethink decades-old relations with Russia - not only in terms of security - but also in energy, food and global supply alliances.

According to one source: "Ukraine is overshadowing these meetings. But there are other issues that must be discussed," adding that debt, international taxation, climate change and global health were also up for debate.

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Ukraine estimates its needs €4.7billion a month to keep public employees' salaries paid and the administration working despite the daily destruction wrought by Russia.

Russia calls its actions in Ukraine a “special operation” that it maintains is not designed to occupy territory but to destroy its southern neighbour's military capabilities and capture what it regards as dangerous nationalists.

The short-term financing package to be agreed by the G7 would cover three months of Ukraine's needs.

EU considers use of frozen Russian assets

On Wednesday, the European Commission offered to provide up to €9billion in loans to Ukraine, financed from EU borrowing guaranteed by EU governments, to cover Kyiv's needs until the end of June.

The Commission 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 the reconstruction of the country after the war ends.

Some economists estimate the financial need for such a project to be between €500billion euros and €2trillion, with estimates frequently changing depending on the length of the conflict and the scope of destruction.

With sums of that magnitude coming into play, the EU is considering not only a new joint borrowing project, modelled on the pandemic recovery fund, but also the confiscation of 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.

Washington wants the discussions to focus on meeting Kyiv's immediate budget needs over the next three months.

"After all, these rebuilding needs are mostly a bit in the future," a U.S. Treasury official said. "This is why we're focused more on the budget needs of Ukraine in the next three months than about reconstruction, Marshall Plans and asset confiscation."