EU to transfer CAD 2.2 billion to aid Ukraine amidst financial turmoil

In July, Euroclear will make the first transfer to the European Fund for Ukraine of around CAD 2.2 billion from the revenues of Russian assets after obtaining European Union (EU) approval last month, writes "Rzeczpospolita," citing Euroclear Bank's statement.

Euroclear Bank is an international financial institution headquartered in Brussels that specializes in handling capital market transactions. It holds frozen Russian assets valued at around CAD 284 billion.

This is about two-thirds of the value of all the assets of the Russian central bank frozen by G7 countries and the EU, which Russia held abroad, reaping significant profits. This refers to cash and securities with a total value of about CAD 366 billion.

As of the end of last year, Euroclear generated revenues of approximately CAD 6.2 billion from the held Russian assets, and the total profit by 2027 could reach CAD 28.1 billion, writes "Rzeczpospolita."

These funds will not go to Russia, which declared war on Ukraine, but to the attacked Ukraine. The EU agreed to this in June. As stated in the article from "Rz," the money will be transferred to Kyiv through intermediary countries: Germany, the Czech Republic, and Denmark. As "Rz" emphasizes, "they too will likely benefit financially."

Ukraine is in a difficult financial situation. As "The Economist" wrote at the beginning of July, the country has a month to avoid bankruptcy. Over the past two years, creditors have agreed to suspend its debt repayments, but the moratorium from private foreign bondholders expires on August 1.

According to the British Weekly, if Ukraine fails to meet its obligations, it will indicate a concerning lack of confidence from private investors in the West's commitment, and in the longer term, this could spell disaster for the country's reconstruction.

By the end of the year, its debt-to-GDP ratio will approach 94%. According to "The Economist," this is very high for an economy with such a tumultuous financial history and size. Although the amounts provided by allies are impressive, they come in the form of artillery, tanks, and targeted funds, not cash.

As emphasized in its article "The Economist," only CAD 10.5 billion of the latest American package will go directly to the Ukrainian government, representing slightly more than one-quarter of Ukraine's annual social spending, even in the form of a loan. The EU plans to offer somewhat more, but still only CAD 50.2 billion over three years.