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European leaders will raise €90 billion in joint debt to fund Ukraine for the next two years after hitting a wall on a plan to issue an unprecedented reparations loan.
Faced with a stalemate over Belgian demands to obtain unlimited guarantees before tapping into the immobilised Russian assets hosted in the country, EU leaders turned to issuing joint debt to keep Kyiv afloat next year and in 2027 against the bloc’s common budget.
Hungary, Czechia and Slovakia will not participate in the scheme.
Euronews first reported plans drafted by the three countries that would see Budapest, Prague and Bratislava benefiting from an opt-out while the other member states will go ahead with issuing a loan under an enhanced cooperation mechanism.
In the run-up to the summit held in Brussels on Thursday, leaders had suggested there was no plan B and doubled down on efforts to issue a reparations loan backed by the Russian Central Bank’s immobilised assets. German Chancellor Friedrich Merz led the efforts to no avail as the Belgian demands for unlimited guarantees made it unpalatable.
The failure to issue the reparations loan is a setback for Merz and Commission President Ursula von der Leyen who had presented the plan as the best option for the bloc.
After the summit, which ended in the early hours following tough negotiations, von der Leyen, accompanied by Danish Prime Minister Mette Frederiksen, said the primary goal had been achieved: funding Ukraine.
“The bottom line, after today, is that our support for Ukraine is guaranteed,” Frederiksen told reporters.
Still, the principle of making Russia pay for the damage inflicted on Ukraine did not materialise. European member states will borrow in financial markets and pay interests on it. The Commission said the loan provided to Ukraine would be interest-free and Kyiv would repay using reparations cash from Moscow. It is by no means guaranteed Russia will ever pay reparations for its invasion and the loan is likely going to become a grant.
Too many divisions and the Hungarian alternative
Ahead of the summit, Hungary had indicated that it would not agree to a reparations loan. Prime Minister Viktor Orbán has refused to provide financial support for Ukraine and has often criticised his European counterparts for their handling of the war. He has also repeated multiple times that Ukraine cannot win militarily and will have to make concessions.
Still, Orbán put together a plan alongside Slovakia’s Robert Fico and Czech Prime Minister Andrej Babiš to break the impasse after it became clear Belgium and the other member states could not agree on fundamental points on the reparations loan, a person familiar with the matter told Euronews. The same person said Orbán had not been offered anything in return for facilitating a deal beyond getting an opt-out from the joint loan.
In the summit conclusions, leaders agreed that Hungary, together with Slovakia and the Czech Republic, would be exempted from any liability connected to the loan through a so-called “enhanced cooperation” mechanism, as first reported by Euronews.
“Any mobilisation of resources of the European Union’s budget as a guarantee for this loan will not have an impact on the financial obligations of the Czech Republic, Hungary and Slovakia,” the text published and approved by the 27 after the summit said.
Orbán meanwhile told reporters that “it looks like a loan, but the Ukrainians will never be able to pay it back.”
“It is basically losing money. And those who are behind that loan will take the responsibility and the financial consequences of that,” he added.
Leaders including Merz, French President Emmanuel Macron and European Council António Costa said the loan represented the fastest and most efficient way to keep Ukraine’s financial needs covered at a critical time for the country.
In addition, EU leaders said they would give the European Commission a new mandate to continue working on the technical and legal finetuning on the reparations loan, although it is difficult to see how a landing zone could be established given the divisions.
Belgian concerns and an impossible ask for the rest
The debate on Thursday initially centred on the reparations loan and appeasing the concerns expressed by the Belgian government. Prime Minister Bart De Wever had played hardball in the weeks leading to the summit saying that he would not accept a bad deal that would leave his country exposed to Russian retaliation.
But his demands unnerved the room and prompted fresh questions.
De Wever demanded to be offered “uncapped guarantees” to protect Belgium and Euroclear, the depository holding the bulk of the Russian assets, which proved unpalatable for the rest.
One diplomat said multiple countries said they would not offer “unlimited guarantees” and the working documents presented to appease Belgium had raised insurmountable concerns for the rest.
“Leaders didn’t really know what they would end up guaranteeing,” a diplomat told Euronews. After multiple attempts, it became clear that the proposal would not fly. At that stage, Orbán decided to meet with Fico and Babiš.
The messy conclusion represents a failure for German Chancellor Merz, who had forcefully advocated for using the cash balances of the Russian assets to provide Ukraine with a financial lifeline. Early on Thursday, Merz framed the reparations loan as “the only option”.
At the end of the meeting, De Wever said the word “uncapped” guarantees had made his European colleagues “nervous” and vindicated his country’s position.
“Today, we proved that the voice of small and medium-sized member states also counts. Decisions in Europe are not simply driven by the biggest capitals or institutions. They are collective,” he said in a thinly-veiled reference to Germany.
“We avoided stepping into a precedent that risks undermining legal certainty worldwide.”
De Wever insisted the Russian assets should be kept away from Moscow’s hands and be used to reconstruct Ukraine, but only after the war has ended. Asked about von der Leyen, he said she had done an “excellent job” but suggested she had been misled by those countries most vocally supportive of the reparations loan.
“Politics is not a softball game. It’s hardball. And if there are big interests at stake, it can clash. And a normal politician, when he makes a decision, he lets go of all the emotions,” he said. “For me, the reparations loan was not a good idea.”
Merz told reporters that “Europe has demonstrated its sovereignty” by agreeing to issue common debt to finance Ukraine’s needs in a complex geopolitical scenario.
“When it comes to Russian assets, we just changed the timeline a bit,” he also said, adding: “Russian assets will be used as securitisation for the loan.”
It is by no means guaranteed Russia will ever pay reparations for its invasion of Ukraine.
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