At stake is not only Ukraine’s financial and military survival, but also the founding principles of the European Union (EU).
Using Russian sovereign frozen assets to keep Ukraine afloat is not ideal. It creates financial and legal risks, raises questions over principles of EU decision-making, and long-established laws of war. However, it’s the least bad option of all, because the alternative is Ukrainian financial and societal collapse and Russian victory. The stakes are very high indeed.
For almost four years, the EU has struggled to decide on using frozen Russian assets to help meet Ukraine’s financial needs. EU leaders are now seeking to agree on how to channel money to Kyiv at a December 18-19 summit. European Council president Antonio Costa, who is chairing the summit, promised that he would keep the bloc’s 27 heads of government in Brussels until they had reached an agreement.
The issue needs to be resolved as soon as possible: Ukraine will soon run out of money. According to the EU and the International Monetary Fund (IMF), Ukraine needs €136.6bn over the next two years to continue defending itself, and the same amount again to cover its non-defense spending over the next four years.
Washington will not help, and indeed is reportedly pressuring some European governments to reject the asset seizure to raise pressure on Kyiv to reach a deal with the Russians. So the bulk of the money needs to come from the EU and allies like Britain, Canada, Australia, and possibly Japan. Kyiv needs the money as early as next spring, so its backers must act fast.
At its summit, the EU aims to decide whether to use the funds to finance Ukraine. The EU has effectively three options: bilateral direct funding from member states, EU-backed debt financing, or using the frozen Russian assets.
The first option is unlikely: many European leaders do not want to raise taxes or increase debts specifically to fund Ukraine, as it poses too great an electoral risk. The Baltic states, northern Europe, Poland, and Germany would be willing to contribute, but southern Europe is unlikely to do so.
The second route involves a loan guaranteed by the EU, with funds raised on financial markets. This is how a $54bn loan was extended at the start of 2024. The loan would not only require interest payments from Kyiv, but it would also be officially recorded as Ukrainian debt and heap even more pressure on the country’s finances. Moreover, it would require unanimous agreement among EU members, which will be difficult to achieve. Unanimity would also block the use of joint EU funds as the sole source of financing for Ukraine.
The third option is to use Russian assets, which has two major attractions — it would have no effect on European or Ukrainian debt, and EU taxpayers would not be forced to foot the bill. This solution poses a different set of serious problems, but it seems the least bad of the options.
The dispute hinges on approximately €210bn owned by the Russian Central Bank and frozen in the EU (another $32bn is frozen in the UK). Before the war, the Central Bank invested its foreign exchange reserves, including the National Welfare Fund, in reliable foreign bonds stored in foreign depositaries. Most of these assets — €193bn ($226bn) —are held in accounts at Euroclear, based in Belgium.
Europe has already moved to tap proceeds from the funds, which have been generating returns. In 2025, €3.7bn was raised through a special tax to support Ukraine. But this is clearly not enough.
In September, the European Commission proposed the use of Russian assets as collateral for a “reparations loan.” After lengthy discussion, the following plan emerged: the EU would issue zero-coupon bonds, member states would provide guarantees to make the bonds reliable, and Euroclear (plus other banks and depositaries holding Russian assets) would purchase the bonds on their balance sheets. The debt does not appear on Ukraine’s balance sheet, and the bonds can only be redeemed when Russia pays Ukraine reparations in a future peace treaty.
There was extensive debate about whether this use of Russian assets would erode trust in the euro and European financial institutions. But by December, the main objection concerned who covers the risk.
The Belgian government raised a pertinent question: What happens if sanctions on the Central Bank are lifted, or if any peace treaty does not include reparation payments? The first scenario could happen if Europe’s traditional dissidents, Hungary and Slovakia, vote against renewing sanctions that have required unanimous agreement every six months. The second would be an issue if the US imposes a peace agreement that makes no mention of compensation while offering sanctions relief. The current Trump plan envisions using the same Russian assets in a way that would make it impossible to use them to repay bonds.
In either circumstance, the Central Bank of Russia would have the right to demand the return of its funds and assets. However, neither Belgium nor Euroclear would be able to comply immediately. Belgium is demanding that all countries involved in the financing therefore provide guarantees so that any potential liability is shared in the event of a demand from Russia. So far, only some countries have offered to guarantee the loan based on a proportion of their national GDP.
Last week, the European Commission activated emergency powers under Article 122 of the Treaty on the Functioning of the EU, which allows members to make decisions by qualified majority. This enables the commission to freeze Russia’s reserves indefinitely without worrying about the need for six-monthly extensions under blocking threats from Hungary and Slovakia.
But there are plenty of critics of this approach. They claim that Article 122 applies when an EU country faces a financial crisis, and Ukraine is not in the EU. Moreover, unlike during the Covid pandemic when this article was invoked to approve special bonds, this time the EU is sacrificing both financial discipline and functional procedure to further a political goal.
Meanwhile, and despite serious concessions, Belgium remains the main opponent of a reparations loan.
Ahead of the EU summit, the European Commission gave legal assurances that, under any scenario, Belgium could tap into as much as €210bn if it faces legal claims or retaliation by Russia, according to the latest text seen by Politico. It also stated that no money should be given to Ukraine before EU countries provide financial guarantees covering at least half of the payout.
In a further concession, the Commission instructed all EU countries to end their bilateral investment treaties with Russia to ensure Belgium isn’t left alone to deal with retaliation from Moscow.
But Belgium didn’t look placated ahead of the summit. Moreover, other European countries — Italy, Malta, Bulgaria, and the new populist Czech government — backed Belgium’s demand to explore alternative financing for Ukraine.
The US has its own plan to use the Russian assets. As the Wall Street Journal reported, an appendix to President Trump’s current peace plan would see Europe transfer frozen Russian assets for investments in infrastructure projects in Ukraine and the Donbas (which would be under Russia’s control). These projects would be carried out by US companies. According to the paper, the White House believes that Europe’s approach would quickly deplete Russian assets, while using them to attract additional investment from American companies could quadruple the pot.
Given the Trump administration’s enthusiasm for profitable deals, Europe’s use of Russian assets could further deepen the transatlantic divide.
For Russia, these funds are all but lost in any event. “They snatched our reserves,” as Vladimir Putin put it back in 2022. But Moscow has real means to retaliate, from targeting Euroclear balances frozen in Russia, to nationalizing funds in immobilized Westerner-owned accounts, while challenging the EU decision in the courts. These steps could not only recover for the budget some of Moscow’s losses but also create problems for the European financial system, exacerbating political divisions within the EU.
The issue of Russia’s frozen reserves is not just a question of money, but a test of the EU’s ability to act strategically and at speed.
Most likely, EU leaders will reach some kind of solution, if only an interim one, since it would be very difficult to admit that the union’s legal mechanisms are preventing it from fulfilling its promises to support Ukraine. The issue of a reparations loan, despite all the risks of friction both between EU members and with the United States, seems like the least-worst scenario for Ukraine and its allies. It’s possible that the loan would cover only part of the required amount, with the remainder provided bilaterally by larger European countries.
A full compromise would also take into account American demands and open the door to Washington obtaining some of what it wants.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA), specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
More on this and other aspects of the Russian economy in a weekly summary produced by the independent publication, The Bell.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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