BONN – The world’s economic powerhouse on Friday pledged to secure Ukraine’s short-term financing needs, announcing a total of $19.8 billion.
Of that, $9.5 billion in loans and grants was announced on the eve of a meeting of G7 finance ministers and central bank governors, which focused on aid to Ukraine and other economic priorities.
“Our message is clear: we are supporting Ukraine quickly and broadly,” said German Finance Minister Christian Lindner, who chairs the G7. Policymakers agreed that fiscal constraints cannot hinder Ukraine’s ability to fend off Russia, he added.
The payment complements recent pledges of military and humanitarian support aimed at closing Ukraine’s funding gap and allowing the country to provide essential services to its citizens. The International Monetary Fund estimates that Kyiv needs $5 billion a month to keep its economy afloat, or $15 billion by June.
Separately, the EU pledged on Wednesday to provide 9 billion euros Macro financial aid was not included in the maximum amount announced by the G7.
“Expectations were met,” Lindner said.
Ukraine’s plan is expected to be finalized at the G7 leaders’ summit on June 26-28. But Lindner said he did not expect another “major funding round” at that meeting as Ukraine’s liquidity needs are “now safe for the foreseeable future.”
Less successful was a proposal backed by the United States and Italy to impose price caps or tariffs on Russian oil exports to reduce revenue flowing to Moscow. The proposal failed to gain support in Germany, with Lindner pointing out that Berlin “does not support the price mechanism”.
U.S. Treasury Secretary Janet Yellen noted ahead of the talks that while this week’s meeting focused on Ukraine’s near-term financing needs, the debate on how to fund the war-torn country’s rebuilding “has only just begun.”
One controversial idea being discussed is to use Russia’s foreign exchange reserves frozen under sanctions to pay the bills — “we need to study in more detail and explore options for the consequences,” Lindner said.
Estimates of reconstruction costs remain a moving target, as they depend on the duration of the war. Totals range from a few hundred billion dollars to over a trillion dollars.
For its part, the European Commission proposed this week to issue new joint debt as part of a plan to finance Ukraine’s future reconstruction needs – a proposal Berlin rejected.
“The Next Generation EU Part II is [Berlin] No support,” said Lindner, referring to the EU’s Pandemic Relief Fund, which has issued hundreds of billions of dollars in loans and grants to EU countries. “It’s a one-time thing. [and] Not completely exhausted yet. ”
The war in Ukraine has also exacerbated another major challenge facing the global economy: raging inflation.
A communique issued at the end of the meeting stated that the G7 central banks “are closely monitoring the impact of price pressures on inflation expectations and will continue to appropriately adjust the pace of monetary policy tightening in a data-dependent and clear communication manner to ensure that inflation expectations remain well anchored. , while taking care to protect the recovery and limit negative cross-country spillovers.”
“It’s time to fight inflation,” Bundesbank President Joachim Nagel told the same news conference. “We must act decisively.”
Nagel hinted that the ECB will also tighten policy in July with its first rate hike in more than a decade, as other G7 central banks have already done. “There may be a rate hike shortly thereafter,” he said, but declined to comment on whether he would push for a bold 50 basis point hike.
Lindner also sounded a hawkish tone.
“We are determined to take consistent measures to combat inflation and strengthen growth,” he said. “This is not the time to stimulate the economy by increasing public demand and subsidies. We need to reduce the deficit, we need to stop the massive spending program that puts more pressure on prices.”
Lindner also welcomed the ECB’s tightening plans for the euro. The common currency has fallen to a five-year low against the dollar, further accelerating inflation. In the communique, policymakers reiterated their commitment to market-determined exchange rates.
The document also touches on another topic of great importance in the news: volatility and regulatory issues in the crypto market.
The Financial Stability Board, a global standard setter, should expedite work on new rules for crypto assets after last week’s market crash left many investors penniless, the communique said.
The rules need to hold cryptocurrencies “to the same standards as the rest of the financial system,” while encouraging countries to develop central bank-backed digital currencies: “CBDCs with cross-border capabilities may have the potential to spur innovation and open up new avenues to satisfy users The need for more efficient international payments.”
Bjarke Smith-Meyer contributed reporting.