EU-Backed Loan To Ukraine Leaves Putin's Money Untouched And Puts Taxpayers On The Hook

In the early morning hours of December 19, the EU agreed to provide Ukraine with 90 billion euros ($105.4 billion) for 2026-2027, with the cash available as early as January next year.

That avoids a financing shortfall, estimated at 70 billion euros, Kyiv would have found itself in as early as in April has been averted.

But it was not supposed to happen in this way. Brussels wanted to leverage the nearly 200 billion euros worth of frozen Russian state assets in the EU for a reparations loan to Ukraine.

Doomed Reparations Loan

European Commission President Ursula von der Leyen, who had been the driver of the idea since early fall, told the European Parliament earlier in the week that this would be Europe’s “independence moment” -- a time when the bloc took a crucial decision to shape the destiny of the continent regardless of what Russia, or anyone else for that matter, had in mind.

German Chancellor Friedrich Merz backed her up, calling the reparations loan “the only option,” a view the club’s Nordic-Baltic countries and Poland shared as well.

In truth, it was far from a done deal.

Belgium, which hosts the financial markets company Euroclear in which most of the Russian assets sit, was never truly onboard. It called for “uncapped” -- in other words, unlimited financial burden-sharing among EU capitals -- a proposal that many balked at, particularly Paris and Rome.

The longer the night went on, the clearer it became that Belgium was far from alone and alternatives needed to be sought.

Burden On The Taxpayer

The writing was on the wall when earlier in the summit France and Italy scored an important victory for their respective influential farming communities by postponing the signing of a trade deal, 25 years in the making, between the EU and Mercosur (Argentina, Bolivia, Brazil, Paraguay, and Uruguay).

French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni were on a roll while Merz and Von der Leyen were retreating step by step.

And when the EU leaders finally called it a day after 16 hours of summitry in Brussels, Putin’s money remained untouched.

Instead, the cash to Ukraine will come via EU countries banding together to raise the money on the financial markets backed by what is known as the EU budget “headroom,” which is Brussels parlance for a financial buffer or the gap between the maximum resources the EU can collect for its long-term budget (which ends in 2027) and what it actually spends.

Put simply, the EU went from using Russia’s money to EU taxpayer cash. But not even all. The Czech Republic -- with its new-old prime minister, Andrej Babis, back in power -- Hungary, and Slovakia all secured carve-outs meaning that this is a deal of EU-24, not EU-27.

In that sense it is even less impressive than when Brussels in early 2024 agreed to use a similar method of raising nearly 50 billion euros for Ukraine on the markets. Then everyone was onboard, even Hungarian Prime Minister Viktor Orban who got assurances that Hungary’s share wouldn’t go to the Ukrainian military.

Together with Belgium, the Visegrad trio were clear winners in Brussels. Orban had declared, prematurely but ultimately correctly, that the reparations loan was dead already before entering the summit.

The fact that Budapest won’t contribute to finance Ukraine will appease his voter base ahead of the April parliamentary elections -- and harness his self-styled image as a peace promoter.

Now, everyone tried to put some nice spin on this at the end of the day. And there are some upshots. The loan to Ukraine is interest free and, similarly to the reparations loan proposal, Kyiv only has to pay back the money once Russia pays reparations.

The Russian assets will remain frozen until then with the EU having changed the rules last week to allow them to remain immobilized as long as is needed with no roll-over via unanimity needed every six months any longer.

The final text agreed by the leaders even states that it “reserves its right to make use of them to repay the loan.” A sort of “reparations loan light,” after all.

There is also a mention, like a consolation to the Russia hawks in the room, that work on the reparations loan will continue even though one EU official admitted that this idea is “now on life support, at best.”