European Union leaders have reached a critical decision on Ukraine’s financial future, approving a massive €90 billion loan package for 2026-27 amid intense debates over frozen Russian assets. The European Council’s agreement represents a significant breakthrough in securing Ukraine’s budgetary and military financing needs during uncertain times. This landmark decision comes as the bloc navigates complex legal and political challenges surrounding the unprecedented use of immobilized Russian sovereign assets.
Member states overcome initial resistance to asset utilization
In the European Council of the 18th and 19th of December, the loan of €90 billion has gained unanimous approval, which would be raised by the borrowing of the EU from capital markets and using the headroom of the EU budget. The loan package is designed in such a way that the repayments by Ukraine would not even be considered until the money has been repaid by the Russian invasion, with the Russian assets still immobilized until then.
The loan will be repaid by Ukraine only after Russia starts reparations, and it will be under the condition that the Union retains its right to use immobilized assets towards meeting its debt, according to European Council President António Costa. This move paves the way for the loan worth €90 billion under Article 20 of the Treaty on European Union and Article 212 of the Treaty on the Functioning of the European Union.
Belgium, the Czech Republic, Hungary, and Slovakia opposed the reparations loan, with the majority of the frozen Russian assets being held by Belgium (€180 bn) via Euroclear, making their opposition crucial to the success of any such financing mechanism that would use assets to support Ukrainian reconstruction and defense efforts.
Loan from reparations faces political and legal hurdles
This proposed loan for reparations, to be guaranteed by around €210 billion of immovable Russian sovereign assets, has proven to be highly politicized for a number of member states. This plan has been declared to be “fundamentally flawed” by Belgian Prime Minister Bart De Wever, citing that Russia would be able to pursue a course of legal action against Euroclear, a Belgian clearing house that holds the majority of the frozen assets.
Monetization of the frozen assets may pose a risk to the EU and financial intermediaries, as they may encounter lawsuits. This argument was disproven by economists. The Kyiv School of Economics stated that Russia has little to pursue in terms of the legal option to challenge the dispute. Russia cited that the rulings of Russian Courts cannot be taken as authentic sources within the EU and UK Courts. This is due to the presence of issues that pertain to jurisdiction and public policy.
Alternative financing mechanisms under development
The EU leaders pressed the Council and the European Parliament to proceed with the work on a legal framework for a reparations loan on the basis of cash balances accruing from the frozen Russian central bank assets. The EC proposed the use of the principal and interest in the Russian central bank assets as “cash balances” in view of the maturity of the bonds. The EC observed that the payment of principal and income to the Russian central bank is banned by the sanctions in place.
“And Ukraine will only repay this loan once Russia pays reparations. The Union reserves its right to make use of the immobilised assets to repay this loan,” European Council President António Costa said at the press conference following the meeting.
The European Council’s decision marks an important milestone in ensuring that Ukraine’s economic stability is protected during this period in which the European Union continues to develop comprehensive strategies for reparations financing. This stopgap measure indicates that the European Union has shown commitment to financing Ukraine’s defense despite the legal hurdles in mobilizing frozen Russian assets in this respect.
