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G7 pledges $20bn to prop up Ukraine budget

Finance ministers from the Group of Seven leading economies pledged to deliver almost $20bn of budget aid to Ukraine as the country struggles to meet its spending needs in the face of Russia’s invasion.

“Ukraine’s liquidity is secured for the foreseeable future,” German finance minister Christian Lindner told reporters after hosting his G7 counterparts at a meeting in the west German town of Königswinter.

The meeting also focused on the danger posed to the global economy by rising inflation, which is driving up commodity, energy and food prices, and which Lindner said had played a “very significant” role in the ministers’ deliberations.

He urged central banks to deal with the problem. “The central banks are very, very, very independent, but they have a very, very, very great responsibility in these times,” he said.

Joachim Nagel, head of the Bundesbank, who took part in the meeting along with other G7 central bank chiefs, said there was an inflation risk from what he called “three Ds” — deglobalisation, where countries sever trading ties with each other; decarbonisation, where economies adopt green policies to reduce their output of CO₂; and demography.

The G7 also called for rapid development of the regulation of financial assets based on crypto technologies, immediately after sharp declines in the value of assets in the nascent class.

The international Financial Stability Board and other international authorities should “advance the swift development and implementation of consistent and comprehensive regulation of cryptoasset issuers and service providers”, the G7 said.

But the war in Ukraine, which has caused ripples throughout the global economy, dominated the discussions. The final communique noted that the war was causing “global economic disruptions, impacting the security of global energy supply, food production and exports of food and agricultural commodities, as well as the functioning of global supply chains in general”.

Germany’s finance minister Christian Lindner, left, and Bundesbank president Joachim Nagel address a news conference after the G7 Summit in Königswinter, Germany, May 20 2022
Germany’s finance minister Christian Lindner, left, and Bundesbank president Joachim Nagel address a news conference after their country hosted the G7 summit © Benjamin Westhoff/Reuters

The figure of $19.8bn of aid agreed by the G7 includes $9.5bn pledged during the meeting. Of that, $8.5bn are grants and the rest guarantees or loans. It also includes $10.3bn that has already been paid out or promised by the IMF.

Lindner said that in addition, the European Bank for Reconstruction and Development and the World Bank were providing $3.4bn to support Ukrainian state companies and the private sector.

The G7 announcement came after the US Senate approved more than $40bn in assistance for Ukraine. From that, the US is contributing $7.5bn to the G7 plan.

The money mobilised by the G7 is designed to cover Ukraine’s urgent short-term financing needs so it can deliver basic services and pay public sector workers and pensions during a war that has devastated its economy and placed massive strain on its finances.

“We agreed that Ukraine’s financial situation must have no influence on Ukraine’s ability to defend itself successfully,” Lindner said. “We need to do our utmost to end this war.”

He said the money was on top of humanitarian and military aid that the west is providing to Ukraine.

The G7 said the group would “continue to stand by Ukraine throughout this war and beyond and are prepared to do more as needed”.

“We are working closely with Ukraine to safeguard its macroeconomic stability in face of the challenges posed by Russia’s war of aggression, massive destruction of critical infrastructure and disruption of traditional shipping routes for Ukrainian exports,” the group said.

On crypto, the meeting’s final statement urged the need for “stronger disclosure and regulatory reporting”, especially of the nature of reserve assets said to back so-called stablecoins, whose value is tied to that of the US dollar.

The G7 said that no stablecoin project should begin operating until it adequately addressed “relevant legal, regulatory and oversight requirements through appropriate design and by adhering to applicable standards”.

This month, Tether, the largest stablecoin provider, declined to provide the Financial Times with detailed information about the company’s reserves.

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