Envoys try to narrow gaps on a loan plan for Ukraine ahead of crunch EU summit

European Union envoys worked to narrow gaps in a plan to use billions of dollars in frozen Russian assets as collateral for a massive loan to cover Ukraine’s economic and military needs, ahead of a crunch summit of EU leaders this week.

Almost four years into Russia’s full-scale war on Ukraine, the leaders have committed to funding Kyiv’s needs, which the International Monetary Fund puts at 135 billion euros (£118 billion).

Ukraine is desperate to secure the money by early 2026.

Sweden’s EU Affairs Minister Jessica Rosencrantz told reporters in Brussels: “We do not have the luxury of time.

“It is really time to move forward with a decision, and Sweden is willing to share the risk because the cost and risk of doing nothing is greater.”

Such a move has never been made before, and it comes with risks. The European Central Bank has warned that if Europeans appear willing to grab other countries’ money, it could undermine confidence in the euro currency.

Some member nations are also concerned about inviting retaliation from Russia.

Belgium, where most of the assets are held, is the main opponent of the plan. It fears that Russia will strike back, either through the courts or in more nefarious ways.

European Council President Antonio Costa, who will chair Thursday’s summit, has insisted that the leaders should not leave EU headquarters in Brussels until they have reached a decision, even if it takes days.

EU leaders froze the money, most of it in Russian Central Bank assets, over the war that President Vladimir Putin launched in February 2022.

Moscow has described the plan as “theft”.

Then last Friday, the EU placed an indefinite freeze on the assets — estimated to total around 210 billion euros (£183 billion) — to ensure that Hungary and Slovakia, both with Moscow-friendly governments, can’t prevent the billions of euros from being used to support Ukraine.

It also ensures that the assets can’t be used by the United States or Russia in any Ukraine peace negotiations without European approval.

Two plans for using the money have emerged. The first would be a “reparations loan” that would use the Russian assets until Moscow agrees to pay for the damage inflicted on Ukraine.

Few think Mr Putin will ever agree to pay reparations.

Plan B would be for the EU to borrow the money on financial markets, much as the bloc did to fund a massive loan plan to revive European economies after the coronavirus pandemic. But many of Europe’s major economies are cash-strapped and mired in debt.

The assets make up a substantial pot of potentially ready-to-use cash. The vast majority — around 193 billion euros (£169 billion) at the end of September — are held in the Belgian financial clearinghouse known as Euroclear.

Plan A has distinct political advantages. Should the EU choose to use the assets, only “a qualified majority” of countries — around a two-thirds majority — would be required for a green light.

Borrowing on financial markets would have to be endorsed by all, meaning that even a single no vote would sink the idea.

Over the last year, Hungary has blocked EU support for Ukraine at almost every turn and the government in Slovakia is starting to dig in its heels as well. Avoiding a veto is in the interest of the vast majority of member countries.

European Commission President Ursula von der Leyen has said the EU would cover two-thirds of Ukraine’s needs for 2026 and 2027, for a total loan of 90 billion euros (£78 billion). International partners would fill the gap.

Due to EU sanctions on Russia’s assets, cash balances have accumulated at Euroclear.

Under the new plan, some of the cash would be transferred to an EU debt instrument. Ukraine would owe the EU the money but would repay only after the bloc’s sanctions are lifted and after Russia agrees to pay war reparations.

The commission insists that there is no “theft,” as Russia has claimed, because the right of the Russian Central Bank to make a claim on its money and Euroclear’s duty to repay will remain intact.

Once Mr Putin paid war reparations, Ukraine would repay the EU, the EU would repay Euroclear, and Euroclear would repay the Russian Central Bank, which in recent days sued the clearing house in an effort to recover its money, ramping up pressure ahead of the summit.

Importantly for Belgium, the plan contains safeguards to ensure that the risks would be shared by its partners.

Other EU countries would offer to guarantee the loan if something went wrong. Germany has already signalled that it would do so, as has Sweden.

But the Belgian government has not been assuaged. Even before the commission’s reparations loan plan was made public, the government warned of “consequential economic, financial and legal risks,” and said it felt that EU partners were not listening to its concerns.

Euroclear has not ruled out legal action of its own, should the EU oblige it to transfer the Russian assets.

But Ukrainian President Volodymyr Zelensky agrees that a reparations loan would be “a game-changer”.

He said: “Why? Because it is a security guarantee for Ukraine — a financial security guarantee.”

Ukraine, he said, would be free to use the money on its economy, infrastructure or armed forces, depending on how the war goes.