Why The EU Dropped Frozen Russian Assets Plan And Opted For $105 Billion Loan To Fund Ukraine

Last Updated:December 20, 2025, 13:29 IST

Belgium’s objections, Russian legal threats and unresolved liability questions forced the EU to drop the reparations-loan proposal and approve fresh borrowing for Ukraine.

Denmark's Prime Minister Mette Frederiksen, European Council President Antonio Costa and European Commission President Ursula von der Leyen hold a press conference during a EU leaders' summit, in Brussels, Belgium. (REUTERS)

Europe has been wrestling for months with a dilemma at the heart of its Ukraine strategy: whether to unlock the hundreds of billions in frozen Russian sovereign assets to fund Kyiv’s survival, or find another way to bridge Ukraine’s looming financial crisis.

With Ukraine warning that it could run out of money by the second quarter of next year, and with battlefield pressures rising as Washington debates its own long-term support, the European Union was under immense pressure to deliver a credible and unified financial plan.

The choice it ultimately made, to borrow 90 billion euros ($105 billion) and loan it to Ukraine instead of using Russian assets immediately, reflects a mix of legal, political and security constraints that made the frozen-assets route too complex to use at this stage.

The decision, taken at a tense summit in Brussels after hours of negotiation, was hailed by many as a geopolitical victory for Europe’s unity. Yet the debate revealed deep divisions within the bloc, especially as countries weighed legal risks, potential Russian retaliation, and domestic political sensitivities.

What Was The Original Plan To Use Frozen Russian Assets?

From the early days of Russia’s invasion of Ukraine, the idea of using immobilised Russian central bank assets to fund Kyiv circulated among European policymakers. The EU holds the largest share of these assets globally, about 210 billion euros, according to Reuters, most of them at Belgium’s Euroclear clearing house. Over time, the European Commission proposed formalising this into a “reparations loan" for Ukraine.

The idea was structured as a workaround to international law, which prohibits confiscation of sovereign assets. Under this plan, the EU would borrow against the Russian assets and give the proceeds to Ukraine while Moscow would retain ownership of its funds. Kyiv would repay the loan only if Russia paid war reparations after the conflict. If Moscow refused, the EU reserved the right to use the frozen assets to recover the loan.

Supporters of the plan said it involved no fresh borrowing and carried a moral logic, since Ukraine has suffered devastation due to Russian aggression. Germany, France, the Netherlands, Denmark, Sweden, Poland, Latvia, Lithuania and Ireland were among the countries backing the idea. European Commission President Ursula von der Leyen had also supported using the assets. But despite the political weight behind it, the plan never secured unanimity.

The legal structure was unprecedented, and the technical details were complicated. As EU leaders arrived at this week’s summit, it was already clear that the frozen-assets proposal faced significant obstacles.

Reparations Loan Considered Too Risky

In the end, the reparations-loan idea became too complex and politically fraught to resolve quickly. Belgium, which holds 185 billion euros of the Russian assets, led the opposition. Belgian Prime Minister Bart De Wever said the proposal carried real risks of retaliation from Moscow, including attempts to seize Belgian assets abroad. He argued that Russia might target Belgium’s assets in places like China.

His concerns were amplified by escalating Russian legal moves. On Monday, Russia’s central bank filed a lawsuit seeking billions in damages from Euroclear as a pre-emptive measure against any EU plan to loan out the funds. By Thursday, the Russian central bank said it would claim damages from European banks equal to the frozen assets and lost profits.

Belgium demanded “binding guarantees" from every EU member state that they would share liability if Russia launched legal claims. As De Wever told the Belgian parliament, “Mere oral promises are not enough." But some major states, including France and Italy, were unwilling to sign up for such guarantees. Without them, Belgium’s approval was impossible.

There were also broader legal and financial concerns. The EU had already been using the interest generated by the frozen Russian bonds to support Ukraine. But as these bonds mature and turn into cash, borrowing against them raised new questions about the stability of the financial system, ownership rights and potential disputes under international law.

Several EU diplomats acknowledged that despite vigorous debate at the summit, too many questions remained unresolved. As De Wever put it bluntly: “There were so many questions on the Reparations Loan, we had to go to Plan B. Rationality has prevailed."

Why Did Europe Ultimately Choose A Loan?

With the frozen-assets route blocked, the EU opted for a more conventional, though still politically tested, solution: borrowing money on capital markets and loaning €90 billion to Ukraine from 2026 to 2027, the period in which Kyiv faces a serious funding gap.

The decision required unanimity, and Hungary’s Russia-friendly Prime Minister Viktor Orbán initially opposed it. But Hungary, Slovakia and the Czech Republic agreed to let the plan proceed as long as it did not affect them financially. The compromise allowed the loan to pass while enabling Orbán to claim a symbolic victory.

“Orbán got what he wanted: no reparation loan. And EU action without participation of Hungary, the Czech Republic and Slovakia," one EU diplomat said, according to Reuters.

The political imperatives were enormous. EU foreign policy chief Kaja Kallas had warned, “We just can’t afford to fail." Belgian Prime Minister De Wever echoed this sentiment, saying, “Had we left Brussels divided today, Europe would have walked away from geopolitical relevance."

The loan also gives Kyiv vital breathing room. Ukrainian President Volodymyr Zelenskyy had cautioned that without funding, his country would not have enough money “for life and weapons." He welcomed the decision, writing on X: “This is significant support that truly strengthens our resilience… It is important that Russian assets remain immobilised and that Ukraine has received a financial security guarantee for the coming years."

For many leaders, unity was itself a strategic priority, especially after US President Donald Trump criticised Europeans as “weak" and as Washington signals a desire for a swift peace settlement. European Council President Antonio Costa said the message to Moscow was “crystal-clear": Russia had failed to achieve its objectives and Europe stood with Ukraine “today, tomorrow and as long as necessary."

Europe’s Financial And Political Calculations

Several countries, including Italy, France, Greece, Spain and Belgium, have seen their public finances strained by borrowing for defence, energy subsidies, climate goals and support for Ukraine. Many leaders, therefore, preferred a solution that preserved stability rather than risk legal or financial turmoil through an untested mechanism.

French President Macron later described joint borrowing as “the most realistic and practical way" to fund Ukraine.

There were also concerns about international law. Although many European lawyers believed the reparations-loan idea was defensible, using sovereign assets, even indirectly, posed long-term uncertainties. The loan option avoided this grey zone.

Meanwhile, the geopolitical backdrop influenced Europe’s choice. A leaked US-backed peace plan had proposed investing $100 billion of frozen Russian assets in US-led efforts to rebuild and invest in Ukraine, with Washington taking profits. European leaders were alarmed at the idea of these assets being redirected outside European control. Von der Leyen described the summit as “Europe’s independence moment," insisting that Europe must be responsible for its own security.

Russian President Vladimir Putin escalated provocations, claiming the West was making an enemy of Moscow and calling European leaders “piglets." Kremlin envoy Kirill Dmitriev responded to the EU decision by saying, “Law and sanity win… for now."

How Does This Decision Shape Europe’s Strategy Going Forward?

The loan deal is widely viewed as a landmark moment for EU foreign policy. Guntram Wolff of the Bruegel economic thinktank told The Guardian the agreement was, regardless, a “huge deal for the EU". “If you want to do EU foreign policy, you need EU resources and debt. The European Council delivered."

Alberto Alemanno, a professor of EU law, added that the agreement was “unprecedented". Letting willing states move forward had never before been tried for “EU budget-backed borrowing, with selective participation in collective liability," he said.

Under the final agreement, the 210 billion euros in frozen Russian assets will remain immobilised until Moscow pays reparations. If that ever occurs, Ukraine could use those reparations to repay the EU loan. For now, Europe has effectively delayed the frozen-assets question while buying time and unity.

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