The European Commission Unveils Two Solutions to Finance Ukraine

On December 3, the European Commission published a document outlining two new avenues for financing Ukraine’s military needs in 2026–2027: EU borrowing and a “reparations loan.” These two decisions are supported by a comprehensive package of five legislative proposals for EU law.

The proposed decisions align with the commitments of the European Council to meet Ukraine’s future budgetary and defense needs, as declared on October 23, 2025.

 The published EU document notes that these proposals will also introduce a set of safeguards to protect Member States and financial institutions from potential retaliatory measures by the Russian Federation on their territories and in jurisdictions friendly to Russia. These risks include, in particular, the possible expropriation of assets belonging to European states, financial institutions, or companies. To cover other risks, the package also includes a strong solidarity mechanism backed by bilateral national guarantees or the EU budget. It is precisely these risks that the Belgian government has repeatedly pointed to, given that the majority of Russia’s frozen funds are located on its territory.

EU borrowing to support Ukraine will be carried out through the EU budget headroom mechanism. The headroom is the difference between the own-resources ceiling (the maximum amount of funds the Commission may request from Member States in a given year) and the actual funds needed to cover expenditures provided for in the budget.

A sufficiently high ceiling allows the EU to meet all its current financial obligations as well as new potential obligations that may arise during the year. In practical terms, this means that the EU will finance Ukraine using the budget reserve, which constitutes an optimal solution.

The second financing track provides for a “reparations loan,” which would allow the Commission to lend Ukraine funds originating from the Russian central bank that are currently frozen in EU financial institutions, primarily in Belgium’s Euroclear. Ukraine would repay these funds through future Russian reparations, to which it has a full legal right.

A similar structure of providing revenues from frozen Russian assets “on credit” was already used when agreeing G7 support for Ukraine. At that time, the countries committed to provide Ukraine with USD 50 billion from their budgets, to be reimbursed from the interest accrued on frozen Russian assets held in Euroclear. The EU was the largest creditor under that arrangement.

We criticized this approach, as it represents a step away from confiscation rather than towards it. The new decision on the “reparations loan” likewise envisages providing Ukraine with income from frozen assets, rather than the assets themselves.

The specific implementation mechanism is expected to be presented at the next meeting of the European Council on December 18–19.