By David Brunnstrom
LUXEMBOURG (Reuters) - EU foreign ministers agreed on Monday to look into using frozen Libyan funds to assist rebels opposing Muammar Gaddafi, with Italy saying funds frozen under sanctions could be used as collateral for loans.
Rebels have long complained that they are short of cash and have sought access to Libyan money in foreign accounts so they can pay salaries and buy supplies. But allowing them direct access to frozen funds could run afoul of U.N. sanctions.
A statement agreed at a meeting in Luxembourg said the European Union acknowledged the urgent financial needs of the rebel transitional council in Libya.
"The mobilization of international resources, including where possible through the use of Libyan frozen funds, in compliance with the provisions of the relevant UNSCRs (United Nations Security Council Resolutions), is key to support the inclusive transition process aimed at fostering national reconciliation," the statement said.
The statement added that "measures in this regard will respect the rule of law."
Italian Foreign Minister Franco Frattini said the EU was looking at using frozen assets as collateral to raise funds for the rebels, as only the U.N. Security Council could decide to unfreeze assets.
"We are looking into using frozen assets as guarantees to give loans in advance," to the Libyan rebels," he told reporters. "We are not looking into unfreezing frozen assets."
Libya's cash-strapped rebel authority said on Sunday it expected to start replenishing its empty coffers this week with the first batch of money promised by its foreign allies.
The rebels say they need more than $3 billion to cover salaries and other needs in the next six months and have won promises of financial assistance from Western and Arab supporters.
Libya's economy relies on oil exports and the rebels have struggled to make ends meet as damage to energy infrastructure caused by the civil war has brought production to a halt in what used to be a major OPEC oil producer in North Africa.
The European Union has imposed sanctions, including asset freezes, on dozens of Libyan individuals and companies seen as supporters of Gaddafi in an effort to persuade him to give up power. They include firms in the oil sector.
A bill that would allow President Barack Obama to use up to $10 billion in frozen Libyan government assets for humanitarian aid to Libyans caught in the civil war has stalled in the Senate.
The United States is holding more than $34 billion as part of sanctions imposed in late February against Gaddafi and his top officials. Under the measure, none of the assets could be used to buy weapons or military equipment.
(Additional by Francesco Guarascio)