The easy choices are long exhausted. Ukraine is set to run tight on money in the next few months and unless European allies or others step up, it could find itself in serious difficulty holding off Russia’s advances on the battlefield.
Instead of turning to their own national budgets, EU states will look to tap a pile of Russian cash worth more than €200 billion, which has been frozen in Europe since the start of the war more than four years ago.
Speaking on Wednesday, European Commission president Ursula von der Leyen said Ukraine stands at a “critical juncture”.
Should peace talks between US and Russian officials run into another dead end, Ukraine will need a huge injection of funding to keep running basic services and financing its armed forces.
RM Block
EU leaders will have to decide how to help fill that gap at a crucial Brussels summit on December 18th.
After weeks of negotiations and back-room planning, von der Leyen’s powerful EU executive formally proposed two options.
One was to borrow money for Ukraine on the markets as an EU bloc. The other was to use frozen Russian central bank assets to finance a €90 billion loan.
The first option, joint EU borrowing, has traditionally been opposed by Germany, the Netherlands and others.
The second option, a so-called reparations loan, while politically and legally complex, is the choice the commission will be pushing.
Belgium’s prime minister Bart de Wever has so far refused to budge in his opposition to the idea.
The vast majority of those Russian assets were held in Euroclear, a depository for state bonds in Belgium. His government is concerned about legal consequences and possible retribution from Moscow.
De Wever, a hard-right Flemish nationalist, is less amenable to compromise for the wider European good than his predecessor, the liberal Alexander De Croo.
“We have listened very carefully to Belgium’s concerns and we have taken almost all of them into account ... We have very strong safeguards in place to protect member states and reduce the risks as much as possible,” von der Leyen said this week.
The reparations loan would only need the support of a weighted majority of the 27 leaders to be approved. But in political terms, it might be difficult for other European leaders to ignore the opposition of Belgium.
The language laid out in the legal text tabled by the commission is stark: “Without this loan, it can be anticipated, in the current international context, that Ukraine will by April 2026 not be able to support its fiscal needs, entailing a realistic risk of defeat in a rather short term”.
The loan would be repaid if Russia agreed to pay compensation for the destruction caused by its invasion of Ukraine.
One big problem has been the fact the assets only remain frozen as long as economic sanctions on Russia stay in place. Introduced in the weeks after the 2022 invasion, the sanctions need to be renewed every six months, by unanimous agreement of all 27 states.
Hungary’s far-right prime minister Viktor Orban and Slovakia’s populist leader Robert Fico, an opponent and sceptic of EU support to Ukraine in turn, have on several occasions threatened to veto the rollover, before backing down.
Locking in the sanctioned frozen assets is key to the loan getting off the ground. Failing to do so would leave national governments having to cover the cost themselves, should repayment to Russia be triggered early by Orban or someone else.
The commission plans to get around those veto risks by relying on emergency EU powers to prohibit the assets being returned to Russia, claiming such a decision would endanger the stability of the union’s economy.
One senior EU official said this would “eliminate” the risk one rogue leader could collapse the sanctions regime freezing the Russian state assets.
EU states will still have to provide guarantees of €105 billion for the loan, in case there is a scenario where repayment to Russia is ever triggered without compensation being provided.
The other funding option – borrowing as a bloc – would need unanimous sign-off, meaning the opposition of Orban, Fico, De Wever or another leader could scupper that plan. That makes it unlikely to be pursued.
To complicate things further, the Trump administration has its eyes on the frozen assets as a key bargaining chip to throw back to Russian president Vladimir Putin in a peace deal.
Their recent 28-point plan referenced using the assets trapped in Europe to partly fund US-led ventures rebuilding Ukraine, which the US would profit from.
The formal proposals tabled by the commission will kick off a hectic fortnight of negotiations between national diplomats and officials, before the EU’s 27 leaders sit down together on December 18th. Everyone will be watching for any shift in Belgium’s position.
The summit has the potential to run on for two or three days, or as long as it takes to come out with a decision.
Taoiseach Micheál Martin and the other national leaders might be well advised to get some of their Christmas shopping done early this year.
