As Russia’s artillery pounds Ukrainian cities, Europe has unveiled a road to new financial arsenal. Determined to match Kyiv’s stamina, the Commission wants to cover two-thirds of Ukraine’s projected external financing gap while making Moscow bankroll some of it.
The European Commission proposed, on 3 December, two novel ways to fund Ukraine through 2026-27. Fresh EU borrowing is to complement a Reparations Loan, the latter fed by cash stranded in Europe from Russia’s own central-bank reserves.
The scheme fulfils a promise made by leaders on October 23rd to find long-term money for Kyiv’s budget and defence. It also marks a shift from ad-hoc aid to a structured, legally watertight plan that can flex whether Ukraine is at war or heading for peace. Russia’s intensifying missile strikes, its hybrid attacks inside the EU and a widening hole in Ukraine’s budget leave little time for leisurely debate.
Critical juncture
“Ukraine really stands at a critical juncture,” warned Ursula von der Leyen, President of the European Commission, at the press conference unveiling the package. “We will ensure Ukraine has the means to defend themselves and take forward peace negotiations from a position of strength.”
The first funding route is familiar. The Union would raise capital on markets, using its budget headroom as guarantee, and on-lend the proceeds to Ukraine. This, however, requires unanimity among member states.
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The second is bolder. A new regulation would oblige banks that hold immobilised Russian central-bank cash to place the balances into a Reparations Loan facility. The money would flow to Kyiv now, to be repaid only when Russia pays reparations later. Because the assets already sit inside the EU, the plan can pass by qualified-majority vote.
Counting the cost
Ms von der Leyen stressed that the scheme “increases the cost of Russia’s war of aggression” and “should act as a further incentive for Russia to engage at the negotiating table”. Using the Kremlin’s own cash gives European taxpayers political cover and sends a blunt message to Moscow: continued war will erode its frozen hoard.
The numbers are stark. The IMF reckons Ukraine needs €135bn over the next two years to keep its administration running and its army supplied. Brussels pledges €90bn. It expects allies—America, Britain and financial institutions—to stump up the rest. Funds will support salaries, pensions and reconstruction, but also boost Ukraine’s defence-industrial capacity and knit it into the European supply chain. Loans will be spent first in Ukraine, then within the EU and European Economic Area, and only beyond if urgent gear cannot be sourced locally.
“First, we would use the money for Ukraine budget support,” Ms von der Leyen said. “The second topic is military support… to further boost Ukraine’s defence industrial capabilities and integrate their capacities into our defence industrial base.” That so-called Cascadian principle, she argued, will speed deliveries and create lasting manufacturing partnerships.
How the cash will flow
To ring-fence the plan five legal texts land on ministers’ desks. One sets up the Reparations Loan. Another forbids any transfer of frozen Russian assets back to their owner. Two more introduce shields against retaliation, details of which will be revealed after Council vetting. Finally, the multi-annual financial framework will be tweaked so EU guarantees can underpin either lending option. All comply with EU and international law, the Commission insists, and preserve the euro’s standing.
Safeguards matter, above all to Belgium, home to Euroclear, custodian of most Russian cash. Brussels promises that no single country will be left facing Moscow’s lawyers alone. “We are introducing a provision that allows the recovery of damages,” explained Valdis Dombrovskis, EU economy commissioner. “These guarantees ensure that the EU borrowing is fully protected and ensure fair burden sharing among member states… This is the time to show the strength of the Union.”
We must move forward with providing Ukraine with the support it urgently needs to stand up for its people, sovereignty and the security of all of Europe. — Valdis Dombrovskis, European Commissioner for Economy, Productivity, Implementation, and Simplification
Belgians fear Moscow could sue in friendly jurisdictions beyond Europe. Hence a layered defence: a “no claims” clause blocking enforcement within the Union, compensation for any assets seized abroad and, ultimately, collective guarantees funded by future EU budgets. The risk of loss is low, argues Mr Dombrovskis, because the Union—not individual capitals—will issue the debt and because the scheme respects sovereign-immunity rules. To reinforce caution €45bn of the Russian balances will sit in reserve to service earlier loans should reparations lag.
Pressure and persuasion
Freezing Russia’s assets was meant as punishment. Funnelled into Kyiv’s coffers, the stash could now finance defence equipment that will boomerang against Russian troops. That twist delights hawks, but the Commission also eyes leverage. By linking repayment to war-damage compensation, the plan nudges Moscow towards a settlement—without tying Ukraine’s hands in future talks.
The strategy still needs political blessing. Heads of government meet on December 18th-19th. Ms von der Leyen urged them to commit swiftly. Mr Dombrovskis echoed the call: “Time is of the essence… We must move forward with providing Ukraine with the support it urgently needs to stand up for its people, sovereignty and the security of all of Europe.”
If leaders agree, the Union will tap markets once more and redirect frozen roubles towards Kyiv. Should they baulk, the bill for rebuilding Ukraine—and for defending Europe, for that matter—will only grow.
