US demands premium for supporting €45B loan to Ukraine

BRUSSELS — The U.S. wants to charge a premium on its share of a G7-wide €45 billion loan to Ukraine to compensate for the deal’s unique sanctions-related risks.

The rules governing the scheme were finalized last week and give countries leeway to adjust interest rates based on their own borrowing costs and on “the interest rate reasonably necessary to cover the lender’s budgetary costs, as determined by each lender,” according to the terms.

In the U.S. case, the surcharge being discussed is 1.3 percentage points higher than Washington’s cost of borrowing on financial markets, with the premium accounting for the risk that the immobilized Russian assets that are being used to repay the €45 billion loan could be unfrozen before the amount is fully repaid, two EU diplomats and a Commission official told POLITICO.

EU sanctions policy against Russia currently requires unanimous renewal every six months, which introduces the risk that a single country could trigger the scenario. U.S. politicians fear this could create a funding shortfall that the American taxpayer would be forced to cover.

As part of the deal, the G7 group of industrialized countries is set to funnel about €45 billion in funds to Ukraine before the end of 2027 to help the country defend itself against ongoing Russian aggression.

These loans were to be repaid over an expected 30-year period using the profits accrued from immobilized Russian assets held mainly at the Belgium-based Euroclear. They will now be given an extra year to generate the profit needed to cover Washington’s additional interest rate expense, the EU diplomat said.

The EU and the U.S. are set to provide around €18 billion in capital each under the scheme, while Canada, the U.K. and Japan will provide €3.3 billion, €2.7 billion and €2.8 billion respectively.

The U.S. was alone in seeking a higher rate of return on its portion of the loan to help convince Congress that the operation would not pose a risk to taxpayers, said the EU diplomat who, like others, was granted anonymity to speak freely. The EU is instead using its €1.2 trillion seven-year budget as collateral for its contribution.

Washington has long argued that the EU’s sanctions renewal process adds undue risk to the package.

However, Hungary’s pro-Russia leader Viktor Orbán vetoed the EU’s attempts to address such risks by extending the sanctions renewal period.

The U.S. Treasury did not immediately reply to a request for comment.