With Donald Trump ruling out further US military aid, and as Russia’s deadly attacks grind on, European leaders are looking for a new way to finance the defence of Ukraine.
Now they think they have an answer: using billions of Russian state assets frozen in the west.
EU leaders are expected to approve the idea at a summit in Brussels on Thursday, although many important details would have to be agreed later if the plan is to become a reality.
What is the plan?
Ukraine would get a loan – possibly €140bn (£120bn) over three years – secured on Russia’s Central Bank assets, which were immobilised by EU sanctions soon after the full-scale invasion of Ukraine in February 2022. About two-thirds of the estimated €290bn of Russian assets in the west – mostly debt securities in the form of government bonds – are held at Euroclear, a central securities depository in Brussels, Belgium.
EU officials say they would not confiscate Russia’s sovereign assets. Instead, the EU would sign a contract with Euroclear to provide a loan for Ukraine secured on these funds. When the war is over, Ukraine would repay the EU using theoretical compensation received from Russia for the invasion. Once Russia pays reparations – a central, but not guaranteed assumption of the plan – the EU would lift sanctions and Moscow could recover its frozen assets. Euroclear would have the funds to send to Russia, completing the circle.
Nobody knows what will happen if Russia refuses to pay reparations or the war continues indefinitely.
Will it happen?
Belgium has serious doubts about the plan: it fears being left alone with the bill if, for example, Russia demands its money because sanctions are lifted.
Most other EU countries say they are ready to offer guarantees to share the risk, while officials consider the risk of Euroclear being successfully sued – another Belgian concern – as marginal.
Despite those hesitations, EU leaders meeting on Thursday are expected to back the idea of using Russia’s frozen assets for Ukraine, although without endorsing any sum. But they would then need to agree on a detailed legal proposal to make it a reality.
One crucial unsolved question is ensuring Russian assets remain frozen solid. Currently, the EU’s Russia sanctions need to be renewed by unanimity every six months, raising the possibility of a premature and costly “defrosting”. Hungary has routinely slowed down the approval of EU sanctions against Russia, although it has never dared to block them.
Lawyers at the European Commission think they have found a workaround using a little-known feature of the EU treaty (article 31(2)) to prevent any country releasing the assets via a veto on the sanctions. But other EU lawyers have doubts. The plan also hinges on Hungary and Slovakia, two Russia-friendly governments, approving the change to the legal basis of the sanctions. That would have to be worked out later.
Officials hope the legal text can be agreed by the end of the year, paving the way for Ukraine to begin receiving funds from April 2026, just as cash is running out. Ukraine is thought to have enough to fund its war effort and keep the economy running until the second quarter of 2026.
What about Russia’s frozen assets outside Belgium?
Belgium holds two-thirds of Russian state assets worldwide and 86% of such funds in the EU, so was an obvious place to start. EU officials estimate €25bn is held in other EU countries, but scattered in different banks with different contracts with Russia. So far the feasibility of using those assets has not been assessed.
According to the European parliament, non-EU countries hold €80bn of Russian sovereign assets, notably Japan (€28bn), the UK (€27bn) and Canada (€15bn).
Will these other countries join in?
Negotiations have been going on within the G7, and Canada and the UK are expected to play a part. EU officials are pessimistic about any contribution from the US, which holds a modest €4bn.
What is the money for?
EU countries have ideas about how Kyiv should spend it. Germany, an influential backer of the frozen assets plan, has said the funds should be used to fund Ukraine’s defence alone, not general spending to keep the country running.
France wants to ensure the money is used to buy European weapons, rather than kit made abroad. But Sweden, the Netherlands and allies in central and eastern Europe think Ukraine is best placed to determine how to spend the money.
To split the difference, the commission has suggested the largest part should be earmarked for weapons made in Europe or Ukraine, but a lesser amount would go to Ukraine’s budget. That would enable Kyiv to buy non-European weapons as well.
Will it be enough?
Under the commission’s plan, the reparations loan could generate €45bn a year for Ukraine between 2026 and 2028.
But that does not fill the gap left by the withdrawal of US support. The US stopped new military aid to Ukraine after Donald Trump returned to the White House. Shipments approved under the Biden administration mostly continued, although the supply of US Patriot systems was stopped in July over concerns about low US stockpiles. The US is supplying Ukraine with weapons paid for by European governments. Researchers at the Kiel Institute have concluded that to replace the US, Europe as a whole would need to spend €82bn a year, about 0.21% GDP.
Then there is the colossal bill for rebuilding Ukraine if and when the war ends, estimated by the World Bank to be $524bn (€506bn), a calculation published in February, before the latest months of intense destruction. The cost of Russia’s invasion will be counted in many ways, for many years. Even all Russia’s frozen billions will not cover the cost.
