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European Union leaders have agreed to borrow 90 billion euros ($105 billion) to help fund Ukraine’s defense against Russia over the next two years. This decision marks a shift from an earlier plan to finance Ukraine using frozen Russian assets.

The EU will provide interest-free loans for 2026-2027, supported by EU borrowing in capital markets and backed by the EU budget’s excess capacity. This amount is expected to cover about two-thirds of Ukraine’s needs during this period. Initially, Britain was to contribute to filling the funding gap with its frozen Russian assets.

Despite initial resistance to the EU borrowing plan, particularly from Hungary, a compromise was reached. Hungary, Slovakia, and the Czech Republic allowed the scheme to proceed after being reassured it would not financially impact them.

The proposal to use frozen Russian assets faced challenges, especially from Belgium, which holds a significant portion of these assets. Other countries like Italy, Malta, and Bulgaria also expressed concerns. The plan would have involved investing the frozen funds in zero-interest bonds, helping meet Ukraine’s needs without outright confiscation, which is against international law. However, the need for Belgium to have guarantees against potential risks stalled this approach.

As for repayment, EU leaders stated that the Russian assets will remain frozen until Russia pays reparations to Ukraine. If this occurs, Ukraine could use those funds to repay the loan, though this scenario seems unlikely. Borrowing 90 billion euros is considered manageable to support Ukraine and maintain investor interest, with expectations of sufficient appetite for this new loan.

With information from Reuters

The European Commission is proposing a “reparations loan” to raise 90 billion euros ($105 billion) to support Ukraine against Russia. This move is legally complex, with uncertainty about potential outcomes. After Russia’s invasion of Ukraine in 2022, Western nations froze Russian sovereign assets, with about 210 billion euros of these assets located in Europe, primarily in Belgium at Euroclear.

Belgium’s Prime Minister Bart de Wever has expressed worries about facing numerous legal challenges. He fears Belgium could be responsible for repaying Russia if there are successful claims against this plan and advocates for all EU countries to share this financial risk. De Wever is also concerned about liquidity issues if quick settlements are required by Euroclear, and he emphasizes that legal costs should be a joint effort among EU nations. Additionally, Belgium wants other G7 countries with Russian assets, like the UK, Canada, and Japan, to adopt similar measures to mitigate risk from potential Russian retaliation.

Possible challengers to the reparations loan include Russia, Belgium, and Euroclear. Russia might file a lawsuit at the European Court of Justice or use a Cold War treaty with Belgium to claim its rights. This could escalate to arbitration in Stockholm or the UN, while Belgium and Euroclear could also take legal action in Belgian courts or at the ECJ. Russia cannot engage the International Criminal Court or the European Court of Human Rights due to membership restrictions, and it does not recognize the International Court of Justice’s jurisdiction.

Legal challenges often take years and would not prevent asset use during proceedings. The average case at the ECJ lasts over three years and requires strong independent evidence. Experts suggest that Belgium and Euroclear might have a stronger position against Russia, but the ECJ usually supports EU foreign policy. The EU aims to avoid expropriation and can reverse actions if Russia ceases hostilities. Claims by Russia regarding asset confiscation are not fully developed, as sanctions typically override commercial contracts.

With information from Reuters