Neither reparations nor loans: Ukraine's gains and losses from the EU decision

On the morning of 19 December, news feeds exploded with headlines about the European Council’s decision to provide Ukraine with €90 billion for 2026–2027. It capped several months of intense and often heated debates within the Union, during which the positions of different parties shifted kaleidoscopically.

Although the news often described this decision as a "reparation loan," in reality it represents a replacement for that instrument.

The key difference is that the reserves of the Russian Central Bank held in the accounts of European depositories are not used in any way to finance these funds.

This decision should be analysed not as an isolated financial step, but as a complex structure combining three dimensions: financial, legal and political, as well as strategic.

In each of these dimensions, the decision serves a distinct yet logically consistent function. Under certain conditions, it may even prove more beneficial to Ukraine.

Financial plane: basic needs covered

The €90 billion loan that the European Union plans to raise on capital markets, under guarantees from the EU budget, effectively covers the bulk of Ukraine’s macro-financial needs after 2025.

This is not about financing all government expenditures but about securing three critical parameters:

– continuity of budget financing;

– predictability for medium-term planning;

– elimination of the risk of a sharp financial gap following the expiration of current support programs.

In this sense, the decision has a clearly pronounced stabilizing effect.

It is not excessive, but sufficient to maintain the basic financial balance of the state during the war and in the post-war period.

Moreover, Ukraine’s financial stability and its ability – at least in monetary terms – to sustain a prolonged war may become a weighty argument in Ukraine’s favour during negotiations between Ukraine and the United States, as well as between the United States and Russia, which are currently underway in Miami.

Why the reparation loan was not approved

At the same time, the EU has not, at this stage, reached agreement on launching a full-fledged reparation loan secured by frozen Russian assets, an idea that has been actively discussed in recent months.

The reserves of the Russian Central Bank will not be involved in any way in the structure of this loan. Tactically, this constitutes a significant victory for the Kremlin, as it preserves the possibility of recovering these funds in one form or another, or of using them in a manner that is at least partially beneficial to Russia – a point discussed further below.

The reasons for this decision are also systemic. First and foremost are the substantial legal risks for central securities depositories and for member states, primarily Belgium, for which no satisfactory legal solution has yet been found.

One may assess the position of Belgian Prime Minister Bart De Wever, who blocked the path toward a "reparation loan," in different ways. However, the EU’s inability to provide unanimous guarantees from all member states is, in itself, telling.

And it is precisely this lack of political consensus that constitutes the second reason for the failure. The positions of Hungary, Slovakia and Czechia – whose governments are hostile to Ukraine – were expected, as was Belgium’s stance.

However, when Italy and even France, represented by President Emmanuel Macron, questioned this option at the last moment, it became clear that the EU is still only on the path toward speaking with a "single voice" at the international level.

Part of this hesitation – particularly in the case of Italian Prime Minister Giorgia Meloni – was driven by uncertainty regarding long-term support from the United States.

The White House reportedly opposed the move, arguing that such a decision could disrupt the peace process. At the same time, it has been seriously considering proposals advanced by Kirill Dmitriev, including the idea of jointly using these assets with Russia – for the "reconstruction of Ukraine" and for joint US business projects.

Against this backdrop, the EU’s decision to allocate €90 billion to Ukraine effectively marks the upper limit of what can be achieved without adopting a legally complex – and potentially revolutionary – approach to Russian reserves, and without risking a complete blockage of the decision at the Union level.

This is not a rejection of the idea, but rather a postponement until political and legal conditions become more favourable.

The asymmetry of power in negotiations is preserved

The current configuration has an important – and often underestimated – feature: it preserves the asymmetry of positions between the parties. Ukraine and its partners retain control over the frozen assets, while Russia has no legal or political tools to definitively "close the issue."

This is critically important on several levels.

First, peace negotiations: the frozen assets remain an object of future bargaining rather than a financial matter that has already been settled and written off.

Second, international law: the argument that "compensation has already taken place" does not arise, leaving room for the use of these assets within the framework of the international compensation mechanism and for the establishment of long-term legal obligations on Russia.

Third, political dynamics: the assets remain a constant source of pressure rather than a one-time financial transaction, after which interest in the issue might fade or the EU could refrain from further use. In other words, there remains – albeit a limited – possibility of their full confiscation.

In this context, the current model is strategically advantageous for Ukraine.

Frozen Russian assets remain liquid; they are not used as collateral for already issued loans and are not burdened by additional obligations, except for payments derived from their income under the ERA Loans programme.

This means that they retain the status of a full-fledged reparations resource rather than being reduced to a purely technical instrument for debt servicing.

Had a "reparation loan" been issued against these assets, the principal amount – €210 billion in reserves of the Central Bank of the Russian Federation – would ultimately have been directed toward repaying EU obligations rather than toward Ukraine’s reconstruction. The current model structurally prevents this outcome.

As a result, Ukraine gains €90 billion in funding in the short term, while strategically preserving the reparations lever for the future.

New risks

At the same time, this configuration is not self-sufficient and entails a number of risks.

The key systemic risk lies in the transformation of frozen assets into a long-term status quo. This could manifest in declining political attention to the issue, the relegation of the assets to a purely accounting element of the financial infrastructure, and the gradual erosion of the reparations logic.

Additional risks include the emergence of compromise models in which the assets are used without a clear link to compensation for Ukraine, political fatigue among partners, or attempts to "technically close the issue."

The most serious risk, however, is that Russia has gained a new negotiating "card" as a result of this prolonged process.

It is entirely plausible that, in a few years, the same Kirill Dmitriev could approach the EU – at a time when the far right is in power in France and Alternative für Deutschland has won elections to the Bundestag – with a proposal to "repay" this loan directly in exchange for the lifting of sanctions, on the sole condition that it not be labelled as reparations.

Minimising these risks lies not in the financial, but in the diplomatic and political sphere.

Here, the main hope rests with Ukraine’s negotiating team, which has already demonstrated its effectiveness on the negotiation track.

* * * * *

The European Union’s decision to provide financial support to Ukraine in the amount of €90 billion does not resolve all existing challenges, but it is fundamentally important that it distributes them correctly over time.

The EU was unable to combine financial support for Ukraine with a final resolution of the issue of Russia’s responsibility, yet it did not do so at the expense of Ukraine’s economic needs.

Financing in the form of a loan provides Ukraine with a basic macro-financial balance after 2025, removing the risk of a fiscal gap and creating a predictable planning horizon.

This is not about covering all expenditures, but about institutional stability – the ability to maintain the manageability of public finances without constant dependence on short-term political decisions by partners.

At the same time, the asymmetry in negotiations is preserved: the EU continues to control the reparations resource in the form of approximately €200 billion in reserves of the Russian Central Bank, and Ukraine retains the ability to work with partners toward their use or confiscation in its interests.

These assets remain a constant source of pressure and a subject of future negotiations, rather than an element of a completed financial transaction.

Paradoxically, from a pragmatic perspective, this represents a rational configuration: short-term stability without the loss of a long-term compensation instrument, allowing responsibility not to be replaced by debt and ensuring that the reparations issue remains on the international agenda.

Serhiy Verlanov, Member of the Board of the Dnistrianskyi Center, Head of the State Tax Service (2019-2020)

Ivan Horodysky, Attorney, Director of the Dnistrianskyi Center

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."