Kursk and the consequences
Kiev demands direct access to Russian foreign assets following Berlin’s decision to cap future military aid for Ukraine. Its attack on Kursk has wrecked efforts to start talks.
BERLIN/KIEV (own report) - Following Berlin’s announcement that it would have to limit funding for Ukraine, Kiev is demanding direct access to Russian state assets frozen in the West. The German government recently decided against making any new spending commitments in support of Ukraine beyond the budget funds already earmarked for Kiev. The Western powers want to provide additional finance by syphoning off the interest accrued on the frozen assets of the Russian central bank kept in Europe. The Kiev government says this won’t be enough. It insists on seizing the assets themselves. The problem, however, is that such a move would set a dangerous precedent. Enabling the theft of foreign state property would have global consequences. The assets of Western countries held abroad would be at risk. The underlying problem driving this situation is that, despite enormous financial transfers, Ukraine remains effectively bankrupt. Hopes of a ceasefire and reconstruction were recently raised by statements from President Volodymyr Zelensky and the dispatch of his Foreign Minister, Dmytro Kuleba, to China. But they have since been dashed following Ukraine’s attack on Russian territory in the Kursk region. The attack has made talks impossible, diplomats are quoted as saying.
Reasons for entering into talks
Kiev had seemed interested in opening negotiations with Moscow several reasons. Firstly, it was trying to win over a number of influential states from the Global South to its side. But the so-called “peace summit” held without Russia in Switzerland in mid-June failed to isolate Moscow politically. The governments of India, Brazil, South Africa and other key players refused to sign the summit’s final declaration, pointing out that peace talks with just one party to the conflict make no sense.[1] So Kiev began to at least feign a willingness to talk as part of further efforts to win over the Global South. Another reason is that severe material pressures have been increasingly making themselves felt in Ukraine. According to the Washington Post, the Russian attacks on Ukraine’s energy infrastructure, intended to force Kiev to give in, have now destroyed nine gigawatts of the eighteen needed by Ukraine at peak times during the cold winter.[2] The Ukrainian population already faces serious power outages, while the already crippled economy is being further ruined by the lack of energy. Ukrainian attacks on Russia’s oil industry, on the other hand, are a relatively minor setback for Moscow. Indeed, they have met with some internal displeasure in Western capitals because strikes on oil terminals have temporarily driven up energy prices.
‘Off the agenda’
According to the Washington Post, Kiev agreed shortly after the Swiss Ukraine summit to a proposal by Qatar to enter into negotiations with Moscow.[3] Talks would proceed from a mutual renunciation of attacks on energy and oil infrastructure as a first step, but with the prospect of an agreed extension to a more comprehensive ceasefire. Qatar had been speaking to both sides for almost two months, according to diplomats. This Doha initiative hoped to reach an agreement without much delay. However, once the Ukrainian attack on the Kursk region began, diplomatic efforts were immediately thwarted. The liberal Russian politician Grigory Yavlinsky, for example, was quoted by the New York Times as saying there had been hope in Moscow for “an end to the fighting this year”.[4] However, the attack on the Kursk region not only “reduced all those chances” but “took them completely off the agenda”. Two former Russian government officials concurred with this assessment in an interview with the US newspaper. And Yuri Ushakov, foreign policy advisor to Russian President Vladimir Putin, explicitly confirmed that the latest “escapade” by Kiev would mean “we are not going to talk” for the time being.[5]
Mediators duped
Kiev is once again alienating potential mediators with its approach. It was only in July that China received Ukrainian Foreign Minister Dmytro Kuleba for talks. He spoke with his counterpart Wang Yi with the intention of finding a path to a negotiated solution.[6] India had also agreed with the Ukrainians a visit to Kiev by Prime Minister Narendra Modi. This was pitched as a balancing gesture after Modi’s visit to Moscow in July. Yet while Kiev was discussing ways to resolve the conflict with Beijing and New Delhi, it had long been preparing the attack on Kursk behind their backs. Modi arrives in the Ukrainian capital today, Friday, with a sense of having been duped. Qatar’s government must also realise that while it was negotiating a way out of the war with Ukrainian interlocutors Kiev was secretly planning to open a new battlefield on Russian territory. Doha, equally duped, has now cancelled the talks that were scheduled to take place shortly.[7]
‘There’s no money left’
At the same time we have seen new tensions emerging between Kiev and Berlin. As reported last weekend, the German government wants to stop, with immediate effect, any new commitments to provide military aid for Ukraine. Almost eight billion euros has already been earmarked for Ukraine in the 2024 federal budget. And the proposed federal budget for 2025 includes a further four billion euros for Kiev, although this sum is already said to exceed budgetary limits.[8] Longer term, there is talk of three billion euros for 2026 and half a billion euros each for 2027 and 2028. Chancellor Olaf Scholz and Finance Minister Christian Lindner insist that further funds will only be granted if the “financing has been secured” for the relevant budgetary items. The background to this is Berlin’s desire to hold down government spending and avoid new borrowing. Commitments already made to the Ukraine will be honoured but, as a senior civil servant is quoted as saying, “The show is over. There’s no money left.”[9]
Setting a precedent
It is now Berlin’s wish that Ukraine’s financial needs be met not primarily from continued German spending but from Russia’s money. The idea is to syphon off the interest accrued on the Russian Central Bank assets that have been frozen in the West. These assets total at least 260 billion euros. The specific target here is the interest from 173 billion euros managed by the Brussels-based clearinghouse Euroclear. The G7 have agreed to confiscate the interest on behalf of Ukraine and provide Kiev with a loan to be paid down on this basis. This intervention could, it is claimed, generate several billion euros a year.[10] However, it leaves a number of questions unanswered. For one thing, experts expect the loan arrangement to run for a possible twenty years. Yet this would effectively mean that the Russian funds would have to remain frozen even after a future peace agreement with Ukraine, if and when one comes about. Another difficulty is the as yet unresolved problem that giving the West or Ukraine access to Russian state property would set a clear precedent. It would mean that Western states must expect the assets they hold abroad to be expropriated in the event of a conflict. Indeed, assets could then be seized not only as compensation for current war crimes but also for past colonial crimes and, above all in the case of Germany, for Nazi crimes.
Financial disaster
This makes Kiev’s current demands all the more difficult. As the Deputy Finance Minister Olga Zykova recently explained in a video conference with the Kiev Centre for Economic Strategy, her government not only wants the rapid release of money from the interest on frozen Russian state assets but demands access to those state assets themselves. She considers this move a matter of urgency in order to stabilise the Ukrainian state budget, more than fifty per cent of which now rests on external grants.[11] For 2025, the country will, she says, need aid money to the tune of at least 35 billion US dollars. And there is still an income shortfall of 15 billion US dollars. The only realistic way out of the growing financial disaster is an end to the war and the reconstruction of Ukraine. But both outcomes look even less likely now that the Ukrainian attack on Kursk is underway.
[1] See also: Objectives clearly missed.
[2] Isabelle Khurshudyan, Siobhán O’Grady, John Hudson, Catherine Belton: Ukraine’s offensive derails secret efforts for partial cease-fire with Russia, officials say. washingtonpost.com 17.08.2024.
[4], [5] Anton Troianovski, Andrew E. Kramer, Kim Barker, Adam Rasgon: Ukraine Says Its Incursion Will Bring Peace. Putin’s Plans May Differ. nytimes.com 19.08.2024.
[6] See also: Diplomatie statt Waffen.
[7] Isabelle Khurshudyan, Siobhán O’Grady, John Hudson, Catherine Belton: Ukraine’s offensive derails secret efforts for partial cease-fire with Russia, officials say. washingtonpost.com 17.08.2024.
[8], [9] Peter Carstens, Konrad Schuller: Kein neues Geld mehr für die Ukraine. Frankfurter Allgemeine Sonntagszeitung 18.08.2024.
[10] Christian Schubert: Ein russischer Hebel gegen Putin. Frankfurter Allgemeine Zeitung 21.08.2024.
[11] Andreas Mihm: Kiew: Brauchen Milliarden schnell. Frankfurter Allgemeine Zeitung 22.08.2024.
