Doubts grow over reparations loan for Ukraine as final deadline nears

Doubts are growing over whether the European Union will succeed in turning Russia’s immobilised assets into a reparations loan for Ukraine, an idea that has so far faced challenges and obstacles across multiple fronts.

The clock is ticking: the 27 EU leaders will gather on 18 December to make a final decision on how to finance Ukraine’s budgetary and military needs over the next two years, aiming to raise at least €90 billion in contributions.

Belgium, the primary custodian of the Russian assets, continues to oppose the reparations loan, fearing consequences. The country has not budged from its original position, despite several entreaties to alleviate its concerns.

If Plan A falls apart, the bloc will have to resort to joint debt. But this would require unanimous approval, and Hungary has already indicated that it would not consent.

Common borrowing would also have an immediate impact on national treasuries, a prospect that most capitals, fearing taxpayers’ backlash, would prefer to avoid.

In the meantime, the US is pushing to strike a peace deal between Ukraine and Russia under an accelerated timeline. Europeans fear that Washington and Moscow might seek to release the immobilised assets to pursue lucrative ventures.

Amid the uncertainty, the leaders of Estonia, Finland, Ireland, Latvia, Lithuania, Poland and Sweden joined forces to call for a swift approval of the reparations loan.

“In addition to being the most financially feasible and politically realistic solution, it addresses the fundamental principle of Ukraine’s right to compensation for damages caused by the aggression,” they wrote in the letter released on Monday morning.

“Time is of the essence. By reaching a decision on the reparations loan at the European Council in December, we have the opportunity of putting Ukraine in a stronger position to defend itself and a better position to negotiate a just and lasting peace.”

Germany, France, the Netherlands and Denmark also support the reparations loan, which has been in the works since September and was formally presented last week.

Under the scheme, the European Commission would channel the immobilised assets of the Russian Central Bank into a zero-interest line of credit for Ukraine.

Kyiv would be asked to repay the loan only after Moscow agreed to compensate for the damages caused by its all-out war, now well into its fourth year.

The bulk of the assets, about €185 billion, are held at Euroclear, a central securities depository in Brussels. There are €25 billion in other locations across the bloc.

This has made Belgium the chief opponent.

Convincing Belgian

For the past two months, Belgian Prime Minister Bart De Wever has mounted a public campaign, arguing the reparations loan is “fundamentally wrong” in its design and comes with “multifold dangers” that could lead to multi-billion-euro losses for his country, which is bound to Russia through a bilateral investment treaty.

His resistance has been met with cross-party support in the Belgian parliament, a rare feat in the otherwise often divided chamber.

“We loyally support Ukraine,” De Wever said last week, “and we are prepared to make sacrifices for that. But this country should not be asked to do the impossible.”

The European Commission has tried to assuage De Wever’s concerns by offering significant guarantees to cover the value of the Russian assets and create legal hurdles that would minimise the risk of Moscow’s retaliation. But the premier has not changed his mind.

His obstruction prompted German Chancellor Friedrich Merz to cancel his trip to Norway and travel instead to Brussels on Friday. Merz met with De Wever and Commission President Ursula von der Leyen for a private dinner that did not result in an apparent breakthrough.

“What we decide now will determine Europe’s future,” Merz said after the meeting.

“Belgium’s particular vulnerability in the issue of utilising the frozen Russian assets is indisputable and must be addressed in such a way that all European states bear the same risk,” he added.

While De Wever was meeting with Merz and von der Leyen, Euroclear issued a fresh rebuke of the reparations loan, warning that its experimental nature might scare off investors, fuel financial instability and drive up borrowing costs for member states.

The message from Euroclear echoed the Belgian position.

“The proposal, as it stands, seems to have a great deal of legal innovation,” a Euroclear spokesperson told Euronews. “Such innovation raises a lot of questions. We have the impression that the construction is currently very fragile.”

Asked about Euroclear’s comments, a Commission spokesperson said: “We now have a clear proposal on the table and discussions continue.”