The G7 summit began on Thursday with an agreement to lend Ukraine $50 billion using money generated from frozen Russian state assets, in a major show of support for Kiev.

The war in Europe was commanding the attention of Group of Seven leaders meeting for a three-day summit in southern Italy, with Ukrainian President Volodymyr Zelensky participating.

After being welcomed by Italian Prime Minister Giorgia Meloni, Zelensky met with the other leaders for a working session.

Leaders said that after months of negotiations an agreement had been reached on the large loan package. Kiev is set to use the money to strengthen its defence, pay for the reconstruction of infrastructure and fund the state budget.

Financing: the devil is in the details

Planning for the structure of the loan package has been under way for some time. The United States had originally campaigned in favour of collecting not only the interest income, but also the frozen assets themselves and using them to provide financial support to Kiev.

The US government says around $280 billion of Russian central bank money has been immobilized in Western countries due to sanctions imposed since the full-scale Russian attack on Ukraine more than two years ago. The bulk of the Russian money is within the European Union.

The Brussels-based financial institution Euroclear – by far the largest holder in the EU of frozen Russian central bank assets – recently said that it had collected around €4.4 billion ($4.7 billion) in interest in 2023.

But some European capitals had major reservations about using both the principle and the interest, resulting in the compromise in which the interest is used as collateral to pay off the loan.

The bloc’s member states recently approved the use of interest income generated from Russian state assets to finance aid for Ukraine.

US steps in in case politics changes the loan picture

One of thorny issues is who would bear the credit risks if the EU sanctions on the assets could not be extended, for instance due to the veto of a member state. That would mean that the interest could no longer be used to pay off the loan.

On Thursday the US declared its willingness to bear the main burden of the multibillion-dollar loan, a high-ranking US government representative said on the sidelines of the summit, where the finance ministers of the seven advanced industrialized democracies – Britain, Canada, France, Germany, Italy, Japan and the United States – hammered out the details.

The US is willing to provide up to $50 billion, or the total amount of the loan to Kiev – the US official said.

However, he emphasized: “We will not be the only lenders.” Others would also participate. The risk would be shared, as would the will to get the project off the ground. He did not provide any specific details. However, he signalled that the sum could end up being even higher.

The US government representative stressed that the loan would be financed from Russian funds in any case. And if there was peace, Russia would have to pay reparations for the damage it had caused, he said, which would be used to repay the loan.

Putting up a united front important to the G7

“We remain determined to dispel any false notion that time is on Russia’s side, that destroying infrastructure and livelihoods has no consequences for Russia, or that Russia can prevail by causing Ukraine to fail economically,” the summit’s draft final declaration said.

At the summit, British Prime Minister Rishi Sunak announced another £242 million ($309 million) in bilateral assistance to Ukraine.

London also issued 50 more sanctions targeting Russia’s financial system and suppliers for Russian military supply chains. The United States issued several hundred new sanctions on Wednesday.

US President Joe Biden and Zelensky will also sign a bilateral security agreement between the United States and Ukraine on the sidelines of the G7, the White House has said. Kiev has struck similar commitments with 15 countries, including Britain, France and Germany.

Besides Zelensky, the leaders of Turkey, Brazil and India will also be attending the Italy talks. Pope Francis will be the first pontiff to take part in a G7 summit, after he was invited to address the risks posed by artificial intelligence.

The war in Gaza and tensions with China are also set to feature high on the agenda at the 28-villa luxury Borgo Egnazia resort, located to the south-east of the city of Bari in southern Italy’s Apulia region. The hotel has previously played host to international celebrities such as Madonna, Justin Timberlake and the Beckhams.

International crises were not the only elements at play in Italy

This could be Biden’s final G7 summit, coming five months before he faces his predecessor and right-wing Republican rival Donald Trump in a US presidential contest that has Washington’s allies on edge.

European leaders are under domestic political pressure, too.

French President Emmanuel Macron and German Chancellor Olaf Scholz will arrive after far-right parties made big gains in last weekend’s European Parliament elections, raising questions about their countries’ political environments.

And, after 14 years of Conservative government in Britain, Sunak is expected to suffer a stinging defeat to the opposition Labour Party in the July 4 general election.