David Lawder and Leika Kira

KOENIGSWINTER in Germany (Reuters) – The Group of Seven’s financial leaders will announce new billions of dollar aid for Ukraine Friday. This money is sufficient to sustain the devastated country’s economy as long as Russia resists its invasion.

G7 countries – Japan, Canada and the United States – are meeting to discuss next steps in imposing sanctions on Russia, to stop it from waging war against them.

Officials from the G7 cited $18.4 Billion in budget support to Ukraine for this year, including recent pledges of $9.2 Billion.

U.S. Treasury Secret Janet Yellen stated to reporters on Thursday that “the message was, We stand behind Ukraine’.” Yellen stated that “We are going to work together to provide the resources they require to overcome this.”

On Friday, there will be discussions on the risk of debt crises in the face rising prices for food and energy, global corporate tax reform progress, financing a shift to renewable energy, and the state of COVID-19.

RUSSIAN ENERGY CURB

G7 representatives have also been discussing plans to decrease Russia’s revenue from oil exports. This includes a proposed phased embargo by the European Union. They are also proposing forming a buyer’s cartel that would limit the prices of Russian crude oil and imposing import duties on Russian oil.

Officials in the United States proposed this as an option to reduce Moscow’s oil profit and maintain Russian crude supply on the markets, so that prices do not spike.

Yellen stated that nothing is as clear and obvious as an apparent strategy in these discussions.

A G7 official stated that the tariffs and pricing caps are problematic as producers don’t have the incentive to adhere and the burden could fall on consumers.

The draft communique stated that the G7 had welcomed Wednesday’s European Commission proposal to loan 9 billion euro ($9.52billion) to Ukraine. It noted also that the European Bank for Reconstruction and Development and International Financial Corporation were planning support of $3.4 Billion, although it was unclear if this was part the $18.4billion or an independent commitment.

Yellen claimed that the U.S. Senate passed a $40 Billion U.S. aid bill to Ukraine on Thursday. The bill included approximately $7.5B in economic assistance.

Ukraine needs $5 billion to maintain the salaries of its public employees and keep the government functioning, despite Russia’s constant destruction.

For the Western world, this war is a significant change. It has forced them to review decades-old relations that they had with Russia, not just in terms of their security but also in regard to energy, food, and global supply agreements, from small-sized microchips to rare Earths.

TAMING INFLATION BEAST

G7 policymakers face the difficult question of how they can contain inflation while increasing sanctions pressure against Russia and not cause recession.

Officials have been raising the issue of “stagflation,” a term that refers to the 1970s dangerous combination of economic stagnation and persistent price increases.

According to the draft, “G7 central bank are monitoring closely the effect of price pressures upon inflation expectations and will continue appropriately calibrating the pace of Monetary Policy Tightening in an data-dependent manner and clearly communicated.”

It stated that they will “ensure inflation expectations are well anchored while also being careful to protect the recovery from negative cross-country spillovers.”

While most of Ukraine assistance was intended to finance Kiev’s urgent cash needs, G7 officials requested that they support long-term recovery and reconstruction.

The estimates by economists of the costs of rebuilding Ukraine range widely from 500 billion to 2 trillion euros depending on assumptions about the duration of conflict and extent of damage.

($1 = 0.9452 euros)