EU is looking for funds for Ukraine: what options can replace the reparations loan?

The discussion on the "reparation loan," an instrument that could finance the Ukrainian budget in 2026-2027 without increasing debt pressure, is becoming more complicated with each passing week.

Current negotiations in Brussels show that there is not one major obstacle, but rather a cluster of legal, political and procedural risks standing in the way.

The European Union is being forced to weigh both the economic consequences of the reparation loan and its long-term impact on domestic political dynamics.

At the same time, Belgium, as the main administrator of frozen Russian assets, insists that any mechanism related to the use of these assets must be legally sound in order to withstand potential lawsuits from Russia and avoid creating precedents that could affect the stability of the European system.

This is why alternative financing models are increasingly being discussed, ones that can provide Ukraine with a stable and predictable economic resource in the coming years.

Three reasons for the slowdown

The first of these risks is the legal vulnerability of the countries holding Russian assets.

The most difficult situation is currently in Belgium, as this is where Euroclear, which houses the largest share of frozen Russian assets, is located. This automatically makes Brussels the primary target for the Kremlin’s potential legal and political retaliatory actions.

An additional layer of complexity stems from the existing investment protection agreement between Belgium and Russia, which lacks modern sanctions exemptions, contains a broad definition of expropriation, allows for ad hoc arbitration and significantly increases legal risks for the Belgian government.

In this context, Belgian Prime Minister Bart De Wever has effectively blocked the approval of the reparations loan at the EU level. He has publicly stated that Belgium requires maximum legal protection, full mutual liability of all member states in the event of consequences and complete transparency regarding other sovereign assets in the EU.

The European Commission has not been able to provide a convincing package of guarantees that would meet these demands.

The financial aspect is no less serious.

Under the proposed scheme, Ukraine would repay the loan only after Russia pays reparations. This means that the EU itself assumes both the temporal uncertainty and the risk of non-repayment.

Financial markets view this instrument as significantly riskier than standard bonds, and rating agencies are already warning about its potential impact on the credit ratings of individual member states.

Added to this is the concern over creating a global precedent. The immobilisation of an aggressor state’s assets could become a model that other countries later choose to replicate.

This worries several European capitals: they do not wish to alter international practice in a way that could allow their own state assets abroad to become subject to politically motivated decisions by third countries in the future.

There is also the time factor. For the mechanism to be operational in the spring of 2026, decisions must be made now.

However, the involvement of the European Parliament and complex inter-institutional procedures are delaying the process by months. There is a real risk that the EU simply will not have enough time to adopt the full package of decisions within the required timeframe.

Possible alternatives

The situation is also complicated by political turbulence within the European Union – the reorganisation of the European Commission, new governments in member states (including Czechia), ongoing budget discussions and the traditional Hungarian blockade.

The more fragmented the EU becomes, the lower the chances of achieving unanimity on complex issues.

And unanimity is now becoming the central problem.

Hungary and Slovakia have voiced their opposition to the reparations mechanism. But no less important is the silence of the "quiet sceptics" – governments that do not publicly state their position yet are unwilling to assume legal risks.

As a result, creative ideas are already circulating in Brussels: for example, an attempt to adopt decisions by qualified majority if the instrument is reclassified as an EU financial operation rather than external assistance. Theoretically, this is possible, but in practice it carries a high risk of escalating political conflict within the Union.

But even this is not the most difficult element. The greatest challenge is the continued freezing of assets.

This is a separate periodic decision, which by the rules clearly requires unanimity. The maneuver used during one of the European Council votes, when Hungarian Prime Minister Viktor Orbán was effectively removed from the voting hall, is unlikely to work a second time.

Other states that have not yet voiced their positions but are extremely cautious about immobilization may also join potential blockades.

Ursula von der Leyen's letter of 17 November 2025, sent to European capitals and officially presenting three possible ways to cover Ukraine's needs in 2026–2027, deserves special attention.

The reparations loan is described there as the "most effective" option, but the Commission itself admits that this instrument could trigger fluctuations in financial markets if it is perceived as a de facto confiscation of Russian assets.

The document explicitly states that such a solution would require coordinated action by the EU and international partners, and that the risks would be reduced if the US, the UK or Japan introduced similar mechanisms.

As for the options and alternatives, the letter outlines three.

The first is the actual "reparations loan": using the immobilized assets of the Russian Central Bank held in Euroclear, providing Ukraine with a zero-interest loan, and tying repayment to Russia’s payment of reparations. Member states would need to provide guarantees to cover legal and financial risks.

The second option is direct grants from member states, proportional to their GDP, which could provide around €45 billion per year.

This is the simplest and cleanest method in legal terms, but it requires real fiscal capacity within member states.

Finally, the third option is classic EU borrowing on capital markets, with the resulting special loan transferred to Ukraine. This loan would formally appear on the EU balance sheet, and its repayment would also be tied exclusively to Russia’s payment of reparations. This model carries lower legal risk but is more difficult to administer.

The letter emphasises that these options are not mutually exclusive and can be combined or implemented sequentially. The key now is to quickly establish clarity and secure a political agreement at the European Council summit in December.

IMF and US factors

Against this backdrop, recent news is particularly important.

On Monday, 17 November, the IMF launched a mission to Ukraine on a new program of about $8 billion, with a decision to provide the first tranche in January 2026. This is a strong move at the right time.

It demonstrates to partners that the IMF is ready to continue its cooperation with Ukraine, while Kyiv is able to make commitments, maintain budgetary discipline and outline a clear trajectory of reforms.

At the same time, it responds to internal challenges: the recent corruption scandals in the energy and economic sectors have not inspired confidence and have given additional arguments to those who oppose large-scale financing for Ukraine.

Therefore, successful negotiations with the IMF could serve as the strongest proof of the government’s ability to manage these processes

and, simultaneously, the most convincing argument in the discussion about the reparations loan or any alternative financing instrument.

An important external factor is the position of the United States.

According to Reuters on 7 November, Washington officially confirmed its full support for the European Commission’s plan to use frozen Russian sovereign assets as a financing tool for aid to Ukraine. A senior American official stated directly that the United States "absolutely supports the EU’s steps" and considers them a legitimate mechanism for putting pressure on Moscow and strengthening Kyiv’s resilience.

Although the share of Russian assets frozen under US jurisdiction is significantly smaller than in the EU, Washington’s political support strengthens Brussels’ position and reduces the risk of this decision being perceived as internationally isolated.

For Ukraine, this stance is a critical element of a broader coalition, without which the launch of such a mechanism would be far less realistic.

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In a context where the European Union is experiencing significant political and financial turbulence, it is of utmost importance for Ukraine to demonstrate transparency, accelerated reforms and macro-financial and fiscal sustainability.

These factors shape the perception of Ukraine as a reliable partner and increase the likelihood of obtaining a "reparation loan" or an alternative instrument.

However, the key factor remains Ukraine’s needs, both in the defence sector and in the restoration of critical infrastructure, which only heighten the urgency of finding sustainable financial solutions.

Therefore, for the European Union, the issue is not only choosing a specific support mechanism, but also ensuring the ability to offer an instrument that matches the scale of the challenges and guarantees continuous support for Ukraine in the coming years.

Serhiy Verlanov,

Member of the Board of the Dnistrianskyi Center,

Head of the State Tax Service (2019-2020)

This material was prepared with the support of the International Renaissance Foundation as part of the project "#Compensation4UA / Compensation for War Damages to Ukraine. Phase V: Interim Reparations for Victims of Russian Aggression against Ukraine – Exploring Approaches, Needs and Solutions."