Brussels Pushes Plan To Use Frozen Russian Assets For Ukraine Financing

The European Union will make a push for a way to finance support Ukraine for the next two years as the bloc’s leaders gather in Brussels on December 18-19.

A potential key component of this is a so-called reparations loan for Kyiv.

RFE/RL looks at how the loan would work, what the main sticking points are, and what the alternatives might be in case there isn’t an agreement.

What is at stake?

Let’s put it bluntly: the International Monetary Fund (IMF) has estimated that Ukraine needs around 135 billion euros ($158.3 billion) for the next two years -- it is facing a budget shortfall of 71.7 billion euros in next year alone and it needs the cash to come early in the second quarter of 2026, so in April.

Western countries have supported the war-torn country with both direct budgetary support and military aid since Russia’s full-scale invasion nearly four years ago but the upcoming period may be different as the United States has signaled that it most likely won’t send more cash to the war-torn country. The onus is therefore on the EU and other G7 countries to step up -- and to do so soon.

So what is a reparations loan?

First mentioned by the European Commission President Ursula von der Leyen in a major policy speech in September, it has been seen as the game changer for Ukraine throughout the fall. The idea, presented in great detail by Von der Leyen in early December, is to use the cash value of frozen Russian state assets held in the EU by moving them into a reparations loan for Ukraine that Kyiv only has to pay back in what is believed to be the unlikely scenario that Russia would start paying the country reparations. Brussels is at pains to explain that this isn’t a confiscation of Russian assets, but rather that the cash will be replaced by bonds or cash issued by the European Commission and backed by EU member states and potentially other non-EU countries willing to join the scheme

What about EU sanctions renewal?

This is one of the tricky parts -- but it looks like EU ambassadors on December 11 found a way around it. The Russian frozen assets in the bloc remain frozen only because the 27 EU member states via unanimity twice a year rollover all financial sanctions imposed on Moscow. The issue many feared is fairly obvious: What if Kremlin-friendly countries such as Hungary and Slovakia decide not to give green light in the future?

Up stepped some of Brussels’ most creative legal minds and suggested that the way to get around this was to use a clause in the EU treaty, 122. This clause allows EU capitals to decide “in a spirit of solidarity between member states, upon the measures appropriate to the economic situation.”

EU legal heads believe that this is a way, due to the huge political and economic issues at stake, to ensure that sanctions renewal can be made via qualified majority instead of unanimity. And it doesn’t need to be renewed every six months. Most EU member states seem to agree with this reading, and it was waved through. This is one step closer to actually get the reparations loan to Ukraine but it's also uncharted legal territory that has huge political implications and is likely to be tested in EU court by countries not keen on being sidelined.

How much money are we talking about?

There are a lot of numbers floating around so let’s get it all straight here: Some 140 billion euros of Russian state assets are being held in the Belgian-based financial markets company Euroclear. There is also an additional 25 billion euros of Russian state assets held in banks across the EU, mainly in France but also in a Belgian private bank, Cyprus, and Germany. So, 165 billion euros in total. But the reparations loan is part of a wider financial package that is worth up to 210 billion euros, according to the European Commission. This also includes 45 billion euros that will be used to repay a G7 loan to Ukraine from 2024.

Still following? Ok, because there is one more figure the European Commission is using: 90 billion euros. This is the actual sum the EU would make available for Ukraine in 2026 and 2027 as it corresponds to roughly two-thirds of Ukraine’s financing needs. Brussels hopes that other international partners such as Canada, Japan, Norway, and the United Kingdom will make up the other one-third.

What are the main obstacles?

Belgium, which sits on most of the cash, has plenty of objections. Its Prime minister Bart De Wever has voiced them both in press conferences and letters to various European leaders in recent weeks and months and Von der Leyen and German Chancellor Friedrich Merz have held lengthy discussions with him to try to get him onboard. Have they succeeded? It doesn’t look like it yet. This loan was actually supposed to be at least signed off on politically when leaders met for a summit in Brussels in October, but De Wever dug his heels in then.

Expect talks, which start on December 18, to last well into the next day. There has already been talk in EU corridors about an emergency summit in early January in case there isn’t a solution. It is worth noting that the reparation loan can be passed with a qualified majority (55 percent of EU member states comprising 65 percent of the total EU population). So Belgium can be sidelined even though everyone, so far, has pledged to get them onboard. Belgium, on the other hand, has threatened to take the EU to court if their demands aren’t met.

So what is Belgium fearing?

Plenty of things. For starters, Russian retaliation against both Belgium and Euroclear. And this means both financial confiscations and legal challenges. So, the country is asking for explicit financial guarantees from other EU capitals if Moscow somehow managed to claw back the money. The debate next week will very much be what form these guarantees will come in, how fast they are available, and for how long. The Belgian wish is that the guarantees exceed the 140 billion euros in Euroclear to cover potential legal disputes on top, and that the cash is made available in days.

And can the other EU countries live up to the Belgian demands?

Somewhat. There is a willingness among most to offer bilateral financial guarantees based on a country’s gross national income (GNI). Germany has indicated that it can provide some 25 percent of the backstop using this key. But you need as many countries as possible onboard, otherwise the burden will be larger on those committed to the scheme. Hungary and Slovakia have both indicated that they are out but their GNI is miniscule. Howevert, other European economic powerhouses such as Italy and France must be in. There has been talk that most EU countries together can back up as much as 200 billion euros but only for two years as the new multi-annual EU budget should come into force in 2028 and provide the future backstop.

The European Commission has also pledged to set up a “liquidity mechanism” that can lend money to governments immediately to ensure that the guarantees can be paid out quickly if need be. The EU executive is also working on a legal proposal to protect EU member states and their banks from legal retaliatory measures from Moscow although details are yet unclear

So is there a Plan B?

Yes, the European Commission did present an alternative plan when it unveiled its reparations loan proposal. Plan B is for the European Commission to issue joint debt and back it up via its budget. There are two issues with this. Many member states aren’t particularly keen to accrue more debt that their taxpayers have to pay off later. And this measure requires unanimity, and Hungary has made it clear it is not interested in giving its thumbs up on it. A potential plan C would be for individual member states to provide money to Kyiv directly but few European politicians, constrained by zero or low growth, are keen to let their citizens pay for something they think Russia is ultimately responsible for.