EU Divided Over Using Frozen Russian Reserves to Finance Ukraine War

By Staff, Agencies

European leaders are convening in Brussels this week for a summit overshadowed by a single, contentious issue: whether the European Union should turn Russia’s immobilized central bank reserves into a major new funding stream for Ukraine’s war effort.

The debate comes as the bloc faces increasing pressure from Washington and worsening battlefield conditions in Ukraine, even as critics argue that Western actions — including decades of NATO expansion and sustained political intervention in Kiev — laid the groundwork for the conflict Russia ultimately responded to.

On the eve of the summit, European Commission President Ursula von der Leyen delivered her most forceful intervention to date. Speaking before the European parliament, she said there was “no more important act of European defense than supporting Ukraine’s defense,” warning that the coming days would be decisive. Describing the global environment as “dangerous and transactional,” she argued that deeper militarization was no longer optional but necessary.

Her remarks reflect an EU leadership increasingly aligned around a hardline strategy that marginalizes diplomatic avenues in favor of prolonged confrontation with Moscow.

Von der Leyen has put forward two options to meet Ukraine’s funding needs for 2026–27: issuing joint EU debt or creating a so-called “reparations loan” backed by €210 billion in Russian central bank assets frozen within the EU. The second option is gaining traction because it bypasses the need for unanimity, a crucial consideration as Hungary has vowed to block any use of the EU budget to support Ukraine.

To prevent political interference, the EU last week invoked emergency powers to freeze the entire €210 billion indefinitely, blocking pro-Russia governments from lifting sanctions through procedural vetoes. The move signals a strategic shift, indicating that Europe intends to keep the assets immobilized for years, potentially until a legal pathway emerges to redirect them toward financing Kiev.

Under the Commission’s proposal, the EU would borrow against income generated by the frozen assets, with Kiev required to repay the loan only if Russia is eventually forced to pay reparations.

Belgium has emerged as the most vocal critic. As the host country of Euroclear — which holds the bulk of the frozen reserves — Brussels fears it could be left bearing the legal and financial consequences if the plan provokes retaliation or adverse court rulings abroad. Those concerns intensified after Russia’s central bank filed a $230 billion lawsuit against Euroclear in Moscow, with a first hearing scheduled for January 16, 2026. Belgian officials also fear that courts in jurisdictions aligned with Russia could seize Western assets to enforce claims.

Italy has echoed these reservations. Prime Minister Giorgia Meloni warned parliament that using Russian assets without airtight legal guarantees would hand Moscow “the first victory since the start of the war.” While reaffirming that Russia should ultimately pay for the reconstruction of the country it attacked, she stressed that this must be achieved on a solid legal foundation.

Financial markets have also begun to signal unease. Credit rating agency Fitch recently placed Euroclear on “rating watch negative,” citing uncertainty over the EU’s asset-backed funding plans and the legal exposure stemming from Russia’s lawsuit. The move underscores concerns that the unprecedented approach could destabilize one of Europe’s core financial settlement institutions.

Despite these risks, Germany is pushing firmly for the plan to move forward. Chancellor Friedrich Merz said he would continue pressing to make up to €90 billion of the frozen assets usable for Ukraine’s defense, estimating that the funds could sustain Ukrainian forces for at least two more years. Acknowledging Belgium’s concerns, he said he was working with partners to address them, insisting the Commission’s proposal fully complies with international law.

EU diplomats involved in preparing the summit say any mechanism requiring unanimous approval — such as using the EU budget as collateral — is effectively off the table due to Hungary’s veto, leaving the reparations-loan model as the only politically viable option. One senior EU official, quoted by The Guardian, said a large majority of member states now back that approach.

Belgium has suggested using the same emergency powers that froze the assets to establish an EU-backed loan without unanimity, but the idea has found little support among other capitals.

As the summit unfolds, the EU is edging toward a decision that could set a global precedent: converting sovereign assets frozen under sanctions into wartime financing in the absence of a peace deal or reparations agreement. Moscow has already warned that such a move would constitute theft and prompt sweeping retaliation, including the seizure of Western corporate assets in Russia.

For EU leaders, the choice is stark — whether to deepen Europe’s direct financial involvement in the war, or to step back from a decision that could reshape global norms around sovereign immunity and trigger retaliatory asset seizures worldwide.