With the United States indicating it may not be willing to finance Ukraine's defense needs for much longer, the European Union is looking into various ways of footing a larger part of the bill in 2026 and 2027, assuming -- as most people in Brussels do -- that the war will continue.
The most obvious hint of this came during European Commission President Ursula von der Leyen's annual policy address to the European Parliament earlier in September in which she floated the idea of a "reparations loan."
More information has emerged about how this loan would work in a one-page discussion paper provided by the commission to EU member states. Seen by RFE/RL, the paper was briefly discussed by the bloc's ambassadors on September 26.
Von der Leyen is due to present this paper to EU leaders as they meet for an informal summit in Copenhagen on October 1 to discuss Ukraine with Ukrainian President Volodymyr Zelenskyy likely to be in attendance. The bloc's finance ministers are also expected to go over more details when they assemble in Luxembourg next week.
While not all the loan mechanisms have been hashed out yet, a few of the outlines are clear.
Any loan to Ukraine would be based on frozen Russian assets in the EU that have been immobilized since Moscow launched its full-scale invasion more than three years ago. The loan would be provided without actually touching the cash itself, and Ukraine would have to return the money only after Russia pays for war damages.
The reparations loan, if approved, could solve a number of issues.
Most importantly, it would give Ukraine the cash injection it needs while eliminating any potential vetoes by recalcitrant EU member states, such as Hungary and Slovakia.
It would also settle the question of what to do with Russian assets in the bloc and relieve pressure on the EU budget.
Possible Obstacles
However, it is far from a done deal, and there are still a few hurdles to clear.
Let's start with the frozen Russian assets.
It is believed there are about 176 billion euros ($207 billion) of these holdings in the bloc, mainly in Euroclear, a Belgian-based financial markets company specializing in central securities depositories.
Some countries, notably the Baltic states, have long wanted to confiscate this money and either give it to Ukraine or use it to build up Europe's underfunded defenses. The argument is simple: Why should European taxpayers foot the bill for the Kremlin's war?
But many Western European nations are against straight-up confiscation.
Belgium is fretting that Moscow would file a solid legal claim against the country and Euroclear for these assets.
The European Central Bank (ECB) is concerned about what confiscation would do to the status of the euro, currently the world's second reserve currency, as such a move might prompt third countries to save elsewhere.
Bigger European countries also believe the money should remain immobilized and instead be used for the reconstruction of Ukraine in the likely scenario that Moscow refuses to pay reparations when the war ends.
The fact also remains that the frozen assets are already being used to generate funds for Ukraine. These are the quarterly windfall profits derived from the cash -- often some 1.5 billion euros ($1.75 billion) -- that are immediately transferred to the war-torn country.
Coalition Of The Willing?
The European Commission is now suggesting the following: Some or all of the frozen assets in Euroclear should be transferred to a so-called Special Purpose Vehicle (SPV) in exchange for zero-coupon bonds issued by the European Commission. These would be backed by guarantees from a so-called Coalition of the Willing consisting of EU member states and possibly other countries from the Group of Seven leading industrialized democracies.
The money in the SPV would then be transferred to Kyiv as loans throughout 2026 and 2027 (and possibly even beyond that), and Ukraine would only have to pay the money back once Russia pays war reparations.
How much money would be available depends on an assessment by the International Monetary Fund (IMF), but it could be 140 billion euros ($164 billion) for those two years. It's likely most of this would need to be provided by Europe if the United States refuses to commit any funds to the scheme.
The good thing about this move would be that it circumvents potential national vetoes.
This was a dilemma in early 2024 when the EU agreed on its 50 billion euro ($59 billion) "Ukraine facility" for the years 2024-2027 and Hungary initially blocked the move.
This cash was taken from the common EU budget "headroom," essentially the spare capacity in the budget beyond what has already been committed, but all 27 member states had to give it the green light.
Some 32 billion euros ($37 billion) out of the 50 billion have already been provided to Kyiv, so there isn't that much headroom left, and Budapest would likely object to more cash being used for this purpose.
And while the European Commission is proposing a 100 billion euro ($118 billion) fund for Ukraine in the multiannual EU budget for 2028-2034, all the member states must sign off on this as well, while it is also increasingly clear that Kyiv needs more immediate funding.
But this is far from a done deal, and Hungary can still put up obstacles to some extent.
The frozen Russian assets will only remain immobilized as long as the EU decides they should stay that way. And Brussels does that twice a year, in July and January, via unanimity. No country, including Hungary, made much of a fuss regarding the latest extension two months ago, but that doesn't rule out any issues arising in the future.
National Guarantees?
The European Commission suggests in the discussion paper that a decision to prolong the sanctions in the future should be taken by a qualified majority, but it notes that this "would require a high-level political agreement by all or most Heads of State or Government."
It is very doubtful that leaders such as Hungary's Viktor Orban and Slovakia's Robert Fico would simply give this a thumbs-up.
There may also be an issue with national guarantees.
How many countries would really be willing to enter a Coalition of the Willing on this?
The more countries that do so, the less money each country would have to guarantee. But in many member states, the national parliament would need to sign off on such a thing and with several countries grappling with ballooning deficits, a lot of politicians may be wary of committing to any type of guarantees.
Euroclear is also likely to push for full and solid guarantees and potentially even a say in the governance of the new loan structure.
And it cannot be ruled out that Euroclear may insist that other financial institutions holding frozen Russian assets also be made to contribute to this scheme.
