Ukraine is desperately in need of funds for its ongoing conflict with Russia, and its traditional allies are finding it harder to stretch their budgets for further assistance. In response, key leaders within the European Union are exploring innovative, and potentially high-stakes, solutions to this pressing issue.
At its core, this plan involves influential European leaders aiming to utilize Russia’s own assets—currently held in Belgium—to secure a significant loan for Kyiv, which could sustain Ukraine’s defense for years to come.
Proponents of this strategy argue that the financial risks are justified, as Europe must demonstrate unwavering resolve to President Vladimir Putin, signaling that Ukraine is not on the verge of collapse.
This sentiment was clearly articulated by Friedrich Merz, the German chancellor, in an opinion piece published recently.
“Moscow will only come to the table to discuss a cease-fire when it realizes that Ukraine has greater staying power,” Mr. Merz wrote.
He added, “We need a new impetus to change Russia’s calculations. Now is the moment to apply an effective lever that will disrupt the Russian president’s cynical game of buying time and bring him to the negotiating table.”
Here’s how that lever might work:
Europe would use Russia’s assets as collateral.
The proposal put forth by Mr. Merz details an inventive use for the hundreds of billions of dollars in Russian assets that were frozen in Europe following Russia’s invasion of Ukraine in 2022. Mr. Merz suggests using these assets as a foundation for an interest-free loan to Ukraine, totaling approximately $160 billion. This dramatically increases the financial support, as Europe currently channels only the interest earned on these assets to Ukraine, which amounted to about $8 billion last year.
Historically, Germany and Belgium have resisted outright confiscation of Russian assets for Ukraine, citing concerns about setting a dangerous legal precedent. Mr. Merz’s new plan deviates from this stance, but carefully. He emphasized that the initiative would not infringe upon property rights, meaning the principal Russian assets themselves would remain untouched.
Instead, Europe would effectively employ these Russian assets as collateral for the loan. Initially, individual countries would commit to guaranteeing portions of the loan. Should the assets somehow become unavailable—for instance, if sanctions were lifted and Russia regained control of its funds—and Ukraine was unable to repay, the responsibility would then fall to European governments to cover the debt.
This framework bears resemblance to a plan presented earlier this month by Ursula von der Leyen, the president of the European Commission, though with some distinct differences.
The German iteration would eventually transfer the loan guarantee burden to the European Union as a whole, rather than individual member states, as envisioned in von der Leyen’s proposal. Furthermore, it would stipulate that Ukraine must use the funds for defense and to acquire European-made weaponry. This detail is a subtle rebuke to the previous U.S. administration, which ceased providing free weapons to Ukraine and pushed European nations to purchase American arms for Ukrainian forces.
European leaders appear to have few alternatives.
The former U.S. President has made it clear that the United States will not offer further financial aid to Ukraine, even as frustration mounts over President Putin’s perceived failure to honor an assumed promise for a rapid peace negotiation.
Other avenues for significant funding are scarce. While Germany authorized substantial military spending through a deal Mr. Merz brokered just before taking office, Europe’s largest economies, including France (another key member of the pro-Ukraine Coalition of the Willing), are struggling to balance their own national budgets.
Consequently, Ms. von der Leyen and Mr. Merz have had to look for unconventional solutions.
“We need to work urgently on a new solution to finance Ukraine’s war effort on the basis of the immobilized Russian assets,” Ms. von der Leyen stated in her State of the Union address this month in Brussels.
There is no agreement yet, and much could go wrong.
In his opinion piece, Mr. Merz indicated that he plans to present his proposal at an upcoming meeting with European leaders in Copenhagen, with the aim of finalizing a deal by the end of next month. This timeline would require reconciling differences between his plan and Ms. von der Leyen’s, and potentially overcoming objections from other member states.
Even if swiftly adopted, any such plan would necessitate complex financial restructuring and likely many months of meticulous legal preparation.
Crucially, both proposals postpone challenging political and financial decisions far into the future, possibly until after the war concludes. A major underlying assumption is that, at some point, Russia will agree to bear the costs of Ukraine’s reconstruction—a notion that stands in stark contrast to President Putin’s current demands for ending the war on his own terms.
“Ukraine will only pay back the loan once Russia pays for the reparations,” Ms. von der Leyen asserted.
Should the war end without a reparation agreement, Europe would be forced to decide whether to permanently confiscate the frozen Russian assets to settle the loan. This represents a step beyond what Mr. Merz appears willing to endorse, at least for the immediate future.