European leaders, including in the UK, are increasingly confident a proposal to lend Ukraine €140bn (£159bn) secured on frozen Russian central bank deposits can be agreed by the end of the year, in a move deemed critical for Kyiv to maintain its defence effort.
Proposals from the European Commission were discussed at a meeting of G7 finance ministers in Washington last week and will be debated at an EU leaders summit on Thursday in Brussels. US participation remains uncertain.
Radosław Sikorski, Poland’s foreign minister, said last week he believed “the issue of the use, on behalf of the victim of aggression, of the frozen Russian assets is heading towards a happy resolution”.
He said an agreement was achievable by the end of the year: “It’s very simple, either we use the aggressor’s money or we will have to use our own money. Don’t ask me which I prefer.”
Under the plan – sketched out in a two-page document by the European Commission last month – the EU would give a €140bn interest-free loan to Ukraine based on the Russian frozen assets held at the Euroclear finance agency.
The loan would be made on the basis that Russia would use the frozen assets to cover war reparations when the conflict ends. “What we are proposing is not confiscation,” a senior EU official told reporters earlier this month.
Ukraine has run an annual budget deficit as it has been fighting off the Russian invasion. In the past it has relied on allied governments to support it with extra borrowing. But rising costs and uncertain US support are increasing the financial commitment on Ukraine’s European allies.
In September, Ukraine estimated it would need $50bn in external support for 2026. In particular, EU officials believe Ukraine will need an urgent injection of funds for its war effort from April 2026, amid no sign of progress in peace talks.
Belgium hosts €183bn of frozen assets at Brussels-based Euroclear, and has called for detailed guarantees that it will not be left alone with the bill, if the scheme collapses, triggering a slew of legal claims. It also wants more pressure on the G7 to take similar measures to aid Ukraine.
Rachel Reeves, the UK finance minister, discussed the plans with her fellow G7 finance ministers in Washington this week as they met on the sidelines of the International Monetary Fund’s annual meeting.
Part of the scheme is that G7 countries would club together to underwrite the debts, principally to reassure Belgium, where most of the Russian central bank money, frozen at the beginning of the full scale conflict, is held.
The UK is expected to make a contribution to this aspect of the scheme despite holding few frozen Russian assets directly. Negotiations are understood to be continuing over the contributions of each G7 country to these guarantees – including whether the US will play a part.
American participation is less certain, but the US also only holds a modest amount of Russian bank assets, at about $7bn. Though White House backing will be seen politically and legally important, it is not necessarily economically critical.
A UK government spokesperson said: “The G7 agrees we must continue to pressure Putin to come to the negotiation table, as well as exploring a new way of financing Ukraine’s war effort through utilising the value of Russian sovereign assets.
“We are continuing to develop the UK’s approach, and are only considering options which are in line with international law and that are economically and financially responsible.”
The UK and EU already takes the profits generated by the Russian assets and gives them to Ukraine, with the aim of generating €45bn. Until now using the underlying capital for Ukraine – a longstanding request of Poland and the Baltic states – has been resisted by France and Germany, who feared endangering eurozone stability.
That dynamic shifted last month when the German chancellor, Friedrich Merz, came out in favour of a reparations loan to fund military aid. In an FT opinion article, Merz wrote that “a new impetus to change Russia’s calculations” was needed.
A draft text seen by the Guardian suggests EU leaders would call on Thursday for the development of a detailed proposal on using the assets, in line with international law and “underpinned by appropriate European solidarity and risk-sharing”.
The plan relies on the assets remaining frozen solid. The commission is pitching to use a little-known mechanism in the EU treaty to prevent one country, such as Russia-friendly Hungary, vetoing the renewal of EU sanctions that underpin the freezing of the assets.
But lawyers at the Council of Ministers, which represents member states, are dubious about the legality of the move, which would shift sanctions to a majority vote, rather than a unanimous one.
