The Group of Seven leading economies and global financial institutions are providing $19.8 billion in aid to bolster Ukraine’s public finances, Germany’s finance minister said on May 20.
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Christian Lindner told reporters that $9.5 billion of the total was mobilised at meetings of the G7 finance ministers in Koenigswinter, Germany, this week. He said the goal is to ensure that Ukraine’s financial situation does not affect its ability to defend itself from Russia’s invasion.
“We agreed on concrete actions to deepen multilateral economic cooperation and underlined our commitment to our united response to Russia’s war of aggression against Ukraine and to our unwavering support to Ukraine,” a G7 statement reads.
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The Finance Ministers and central bank governors of the United States, Japan, Canada, United Kingdom, Germany, France and Italy — the G7 democracies — also are discussing next steps on sanctions to pressure Russia to end the war launched on February 24.
U.S. Treasury Secretary Janet Yellen and other leaders spoke this week about the need for allies to put together enough additional aid to help Ukraine “get through” the Russian invasion.
"The message was, 'We stand behind Ukraine'," Ms. Yellen told reporters late on May 19. "We're going to pull together with the resources that they need to get through this," Ms. Yellen said.
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The finance ministers of the G7 also have grappled with deepening inflation, food security concerns and other economic issues during their talks.
As the finance ministers were meeting in Germany, the U.S. overwhelmingly approved its own $40 billion infusion of military and economic aid for Ukraine and its allies. The legislation was backed by every voting Democrat and most Republicans.
Russian energy curbs
Amid the sessions, G7 officials also have been discussing proposals to reduce Russia's revenues from energy exports, including a phased embargo proposed by the European Union, forming a buyers' cartel to cap prices for Russian crude and imposing import tariffs on Russian oil.
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The latter was floated by U.S. officials as a way of limiting Moscow's oil profits while keeping Russian crude supplies on the market to avoid price spikes. "Nothing is really crystallised as an obvious strategy," Ms. Yellen said about those discussions.
Another G7 official said the pricing caps and tariffs were problematic because producers have little incentive to comply and consumers could end up bearing the brunt of the added costs.
In the draft communique, the G7 welcomed the European Commission's proposal on May 18 to lend nine billion euros ($9.52 billion) to Ukraine. It also noted that the European Bank for Reconstruction and Development and the International Financial Corporation planned support worth $3.4 billion, but it was not clear if it was part of the $18.4 billion or a separate commitment.
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Ms. Yellen said that a $40 billion U.S. aid bill for Ukraine, passed overwhelmingly by the U.S. Senate on May 19, included about $7.5 billion in new economic assistance.
Ukraine estimates it needs some $5 billion a month to keep public employees' salaries paid and the administration working despite the daily destruction wrought by Russia.
The war has been 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.
Inflation
More broadly, the G7 policymakers are wrestling with the question of how to contain inflation and increase sanctions pressure on Russia without causing recession. More and more officials have brought up the term "stagflation" - the dreaded 1970s combination of persistent price increases coupled with economic stagnation.
"G7 central banks are closely monitoring the impact of price pressures on inflation expectations and will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner," read the draft.
They will ensure "that inflation expectations remain well anchored, while being mindful to safeguard the recovery and limit negative cross-country spillovers," it said.
“Most of the efforts on Ukraine aid were to fund Kiev’s immediate cash needs, but the G7 officials called for supporting long-term reconstruction and recovery,” the draft said.
Economists' estimates of the cost of rebuilding Ukraine vary widely between 500 billion euros and two trillion euros, depending on the assumptions on the length of the conflict and the scope of destruction. ($1 = 0.9452 euros)