The European Union is urgently working on a plan to ensure a continuous flow of financial aid and weapons to Ukraine. This initiative comes at a critical time when support from the United States is uncertain, and Ukraine’s needs are growing rapidly.
On Thursday, leaders from the EU’s 27 member nations are widely expected to endorse a new and potentially risky proposal. This plan centers on utilizing Russian assets that have been frozen since Moscow’s full-scale invasion of Ukraine in 2022.
The European Commission, the executive branch of the E.U., has outlined a preliminary plan to use these immobilized funds to secure a €140 billion ($163 billion) loan for Ukraine. While political leaders are set to decide whether to formally pursue this proposal on Thursday, finalizing the intricate details and reaching a full agreement could take several months.
Should they proceed, this would represent a pivotal first step towards what European leaders are calling a “reparations loan.” Such a move would provide crucial financial support for Ukraine as American aid diminishes.
However, significant risks are involved, including potential retaliation from Russia and a possible blow to Europe’s reputation as a secure haven for international assets.
Here’s what you need to know:
The core idea: using frozen funds to guarantee a loan.
A substantial portion of the Russian government’s frozen assets is held by Euroclear, a financial institution located in Belgium. Europe already channels the interest generated from these deposits to Ukraine, which amounted to approximately $8 billion last year.
Under the proposed new plan, Euroclear would transfer effective control of Russia’s frozen funds to the European Union. The EU would then use this money as collateral for a massive loan to Ukraine. Ukraine would only be required to repay this loan if it eventually receives reparations directly from Russia.
This move is both a political and financial gamble, with a primary concern being how the Kremlin would react.
The European Union argues that this arrangement is legal because the money would be borrowed, not confiscated outright, allowing Russia the possibility of retrieving it in the future. However, a Kremlin spokesman recently described the plan as “theft,” and Russia has threatened to prosecute individuals and countries involved.
As the primary location for Euroclear, Belgium is particularly concerned about bearing the brunt of any legal or financial fallout. The nation has insisted that these risks must be distributed across Europe.
Critics of the plan have also voiced concerns that utilizing Russia’s assets could unsettle other major nations, such as China and India. They worry that these countries might become hesitant to hold their savings in European banks, fearing their own assets could be frozen and repurposed if they fall out of favor with Europe.
EU officials maintain the plan is essential.
Officials from the European Commission dismiss these fears as unfounded.
“If you don’t start a war against another country, then your assets are not at risk,” Kaja Kallas, the EU’s top diplomat, recently stated to reporters during a visit to Kyiv, where she and Ukrainian President Volodymyr Zelensky discussed Ukraine’s urgent budgetary requirements.
While downplaying the risks, officials have underscored the necessity of this plan. As the conflict persists, Ukraine faces not only massive ongoing costs but also a significant budget deficit.
A significant challenge is the sharp decline in American support. From 2022 to late 2024, the Biden administration secured approximately $174 billion in funding for Ukraine from Congress. However, under President Trump, U.S. military aid to Ukraine has drastically decreased this year, becoming almost nonexistent in recent months, according to the Kiel Institute think tank.
While European nations have contributed substantially to Ukraine, their own budget constraints make it difficult to completely fill the void left by America’s reduced involvement.
A loan backed by frozen Russian assets could, in theory, bridge this funding gap. However, with key details still undecided, it remains unclear whether the loan will precisely meet Ukraine’s needs or fully compensate for the withdrawal of United States support.
Major questions remain.
The exact usage of the loan by Ukraine has yet to be determined.
Some nations, notably Germany, have suggested that the funds should be exclusively allocated for procuring weapons. President Zelensky, however, has indicated that they should also be available for other critical budgetary requirements.
Furthermore, other practicalities need to be resolved.
While European nations could offer loan guarantees to alleviate Belgium’s concerns, the structure of these guarantees is uncertain. Will all 27 EU nations be equally invested? Will the guarantees involve tangible collateral?
Belgium also seeks support for the plan from the broader Group of 7 nations, but it is uncertain whether Washington will agree to this.
Finally, the EU executive must establish a robust legal framework to ensure that the assets remain frozen for an extended period. If the freeze continues to require regular renewals, as is currently the practice, a nation with closer ties to Russia, like Hungary, could potentially disrupt the loan by refusing to keep the funds immobilized.
Given these significant unresolved questions, Thursday’s decision would merely initiate the process. Nevertheless, with Ukraine’s urgent needs, finding swift answers will be a top priority.