So Close, Yet Drowned at the Shore: The EU Did Not Approve a Reparations Loan for Ukraine

Author: Nataliia Sichevliuk, Legal Advisor at Transparency International Ukraine

On December 18-19, the EU summit approved financing for Ukraine for 2026–2027. It had been expected that support for Ukraine would be provided through frozen Russian assets—this was the idea put forward by the European Commission under the name of a “reparations loan.”

But things did not go as planned.

Instead of a reparations loan, the European Council decided to grant Ukraine a concessional loan of EUR 90 billion for 2026–2027, based on borrowing by the EU on capital markets and secured by EU budget reserves.

Thus, although Ukraine will receive the funds, once again it will be at the expense of European taxpayers.

The reason is that not all European countries proved willing to use Russia’s sovereign assets for Ukraine’s needs.

Why did the EU fail to reach agreement on a reparations loan? What was its proposed mechanism, and what became the real obstacle?

These questions are addressed in this article. The discussion about the future of Russian funds is far from over, and EU leaders have already announced that they will return to the issue of a reparations loan at a later stage.

A brief retrospective

The idea of using Russian sovereign assets for Ukraine’s needs has been voiced since the first days of the full-scale invasion. From the outset, Ukraine called for their full confiscation, but the EU and other Western partners pointed to the absence of legal mechanisms and raised concerns about economic and legal risks.

The first objection raised by opponents of this step was that sovereign assets held abroad enjoy immunity, which created concerns both about potential legal challenges and about setting a precedent—namely, whether other states might take similar action against European assets. Over time, additional arguments were put forward.

Even when national and international experts converged on possible pathways for confiscating Russian sovereign funds, including through the international law doctrine of countermeasures, some EU Member States continued to view the idea with extreme skepticism.

It became clear that the issue of confiscating Kremlin funds was purely political.

And it was not only because the EU includes countries (such as Hungary and, to some extent, Slovakia) that consistently maintain pro-Russian positions.

For some other European states, the loss of Russian sovereign funds would simply be financially disadvantageous.

The largest “gold reserve” of Russian funds is held by Belgium’s Euroclear. Although these assets are frozen, they continue to generate income through investment in securities markets. Under EU law, the profits from frozen assets no longer belong to Russia.

Moreover, as these funds have been held in the depository for a prolonged period, the maturity of certain instruments is gradually reached. Since Russia cannot withdraw or otherwise use the frozen assets, the funds gradually become freely usable by Euroclear. According to Reuters estimates, Euroclear has currently accumulated approximately EUR 176 billion in cash from frozen Russian assets; the remaining EUR 9 billion held at the depository is expected to be released in 2026–2027.

It is therefore unsurprising that Belgium has become the most vocal opponent of the idea of confiscating these funds for Ukraine’s benefit.

Because public concerns were voiced specifically about confiscation, the EU decided as early as February 2024 to use part of the income generated by frozen Russian assets—without touching the assets themselves—to finance Ukraine. This approach later evolved into the idea of a larger EUR 45 billion loan from the EU and the G7, known as Extraordinary Revenue Acceleration (ERA).

Under the ERA mechanism, G7 countries provided Ukraine with funds from their own budgets, secured by the future income from frozen Russian assets held in EU depositories. The EU provided its share of the loan directly from these proceeds. Importantly, however, the financing and collateral relied only on income generated after February 2024, when the Council of the EU adopted the relevant decision.

As of the end of October this year, the EU and the G7 had disbursed EUR 25.3 billion of the pledged EUR 45 billion to Ukraine under this arrangement.

Thus, the approach of lending funds to Ukraine secured by income from frozen Russian sovereign assets in the EU is not new. So how did the reparations loan differ from the ERA credit?

One step forward, two steps back

We criticized the ERA approach adopted by Ukraine’s partners, as it represented a step away from confiscation rather than toward it. The new proposal for a “reparations loan” likewise envisaged providing Ukraine with funds derived from what were formally designated as “income from frozen assets” held in EU depositories—again, without formally touching the assets themselves.

These revenues were to be pledged against reparations that Russia would be required to pay after the end of the war.

The key difference, however, was that the reparations loan envisaged financing directly from the “income” generated by Russian assets, rather than from the budgets of partner states. This mattered because European taxpayers are growing weary of financing Ukraine at their own expense, and political support for Ukraine is declining with each successive election. The United States is an obvious example, but similar trends can also be observed in Europe, beginning with the Czech Republic.

Preliminary discussions suggested a reparations loan of around EUR 140 billion or less (with total assets frozen in the EU amounting to approximately EUR 210 billion, EUR 185 billion of which are held in Belgium), as some states led by the United States believe that part of the funds should be retained for negotiations with Russia.

To avoid the risk that assets pledged as collateral might at some point have to be returned to Russia, the European Commission proposed—and the Council supported—legislative amendments prohibiting any return of frozen Russian Central Bank assets. Crucially, the EU managed to circumvent its own rule requiring unanimity for sanctions-related decisions and found a legal pathway to adopt the measure by qualified majority voting, despite opposition from Hungary and Slovakia.

This eliminated the need for unanimous renewal of sanctions every six months and deprived pro-Kremlin governments of the ability to block extensions that could have led to the unfreezing of assets.

This safeguard was adopted primarily to address the concerns of Belgium and other holders of significant volumes of frozen Russian assets that, if sanctions were not extended, they might be required to compensate Russia for the income from those assets that the EU intended to transfer to Ukraine under the reparations loan.

In addition, the reparations loan mechanism was to introduce a set of guarantees to protect Member States and financial institutions against potential retaliatory measures by Russia in its own territory or in friendly jurisdictions, including risks of expropriation of assets belonging to European states, financial institutions, or companies.

Yet even these guarantees were insufficient to persuade the Belgian Prime Minister to agree to the reparations loan.

What comes next?

As the above shows, the reparations loan could indeed have marked progress in the EU’s policy toward frozen Russian assets. At least insofar as Ukraine’s war-related needs would have been financed not from partner states’ budgets, but from income generated by frozen Russian assets.

Notably, allowing EU assistance to be directed toward military expenditures was itself another innovation that the EU eventually accepted.

Nevertheless, even the use of income from the aggressor’s assets proved too risky for some EU countries. As a result, the prospect of confiscating the assets themselves now appears even more remote than before. However, there is clearly no intention to return them to Russia.

This means that discussions both about the reparations loan and about the assets themselves are effectively on pause. We can only hope that the next round of discussions on this issue will be more successful.

After all, how long will the EU be willing to continue paying Russia’s bills for the war in Ukraine—while holding the aggressor’s money and refusing to use it?