EU leaders are moving to approve a new aid mechanism for Ukraine — a €140 billion loan based on immobilized reserves of the Central Bank of Russia. In Brussels, officials have already dubbed it a “reparations” loan. When could it happen, and would Ukraine have to pay it back?
The idea of using Russia’s frozen central bank reserves held in the West to support Ukraine has been discussed in the EU for some time, but until recently many EU governments resisted it. Legal and financial risks, as well as fears of triggering a new round of escalation from Moscow, held them back.
Germany and France led the opposition to full confiscation (or were skeptical of transferring the principal), often joined by Spain and Belgium, where the Euroclear depository holds the vast majority of the assets.
Opponents — including the European Central Bank — cited three main concerns. First, legal risks: potential violations of international law, particularly the principle of sovereign immunity. Second, financial stability: concerns that confiscation could undermine confidence in the euro as a reserve currency and prompt capital flight from European financial institutions. Third, loss of leverage: skeptics argued these assets are a key bargaining chip in any future peace talks with Russia.
The landscape shifted recently. German Chancellor Friedrich Merz endorsed issuing a Ukraine loan backed by Russian funds. He outlined the idea in a column for the Financial Times, also posted on the German government’s website.
“In my view, we need to develop a viable solution that will allow us — without infringing property rights — to provide Ukraine with an interest-free loan totaling almost €140 billion. This loan will only be repaid once Russia compensates Ukraine for the damage caused during this war. Until then, the Russian assets will remain frozen,” Merz wrote.
Germany is the EU’s largest economy by GDP, and its stance carries significant weight in bloc-wide decisions.
Signaling a broader shift, European Commission President Ursula von der Leyen recently told the European Parliament the EU could provide Ukraine with a “reparations loan,” though she offered few details.
“We need a more structural solution for military support and that is why I have proposed the idea of a reparations loan based on immobilized Russian assets,” von der Leyen said.
According to Reuters and Politico, technical work on the mechanism to use Russian assets for Ukraine is largely complete — outstanding details are still being hashed out.
The plan would mobilize nearly the entire amount held at Euroclear. Roughly €175 billion of the €190 billion has reached the end of its investment term under the agreement with Russia’s central bank, and has been converted from securities into cash. The funds continue to generate returns, but far more modestly.
Part of the sum, Reuters reports, would go to repay loans under the ERA program. The remainder would flow into a special vehicle created by EU governments and possibly the G7. That vehicle would extend a new loan to Ukraine, while Euroclear would receive bonds issued by the creditor countries. If Russia were to sue Euroclear and win, those countries would assume the depository’s liabilities.
Von der Leyen has said Ukraine would have to repay the loan if Russia pays reparations — the party responsible should bear the cost.
EU leaders were expected to take a decision on October 1. For Ukraine, approval is critical. Following recent talks with the IMF, Kyiv sharply revised its external financing needs for 2026–2027. Bloomberg reports the estimate rose from $38 billion to $65 billion.
It remains unclear whether Hungary and Slovakia — viewed as sympathetic to Russia — will participate in the plan to fund Ukraine with Russian assets.
Politico reports the EU is working on ways to sideline Hungarian Prime Minister Viktor Orban to unlock the Russian assets. At a summit in Copenhagen in early October, EU leaders discussed a mechanism to move forward “around” Hungary, which has blocked confiscation and use of the funds for Ukraine.
Officials in Brussels say they have identified a legal path to minimize Budapest’s influence over the decision.
A final decision is slated for late October at an official European Council meeting.
The push to confiscate frozen Russian assets for Ukraine has been on the table since the start of Russia’s full-scale invasion, but never moved into implementation.
“Because the EU is not at war with Russia, outside the G7 confiscation would be seen as an unlawful measure or even theft — it would undermine faith in Europe’s commitment to a rules-based international order,” said Nicolas Véron of the Bruegel think tank.
Only an international court would have indisputable authority to strip Russia of ownership of its reserves. In theory, the International Court of Justice could rule accordingly, but Russia — as a permanent member of the UN Security Council — could block the process.
A different approach emerged to use the frozen reserves without seizing them outright. Last year, the Emergency Lending Program (ERA) was set up, with G7 countries pledging roughly €45 billion in loans to Ukraine. Interest on those loans is covered by earnings generated by securities and other assets tied to Russia’s immobilized reserves.
Ukraine has already received most ERA funds. For next year, the National Bank of Ukraine expects just €10 billion. The depletion of that stream is pushing Kyiv’s allies to seek new mechanisms.
Moscow has sharply condemned EU plans to use frozen Russian assets — including to issue a “reparations loan” to Ukraine.
Russia’s Foreign Ministry called the idea state-level theft.
“Any encroachment on Russian state property under the cover of any contrived ‘reparations mechanism’ will be nothing but theft at the state level,” the ministry said.
Russian officials, including former President Dmitry Medvedev, have threatened legal action against EU states, “euro-degenerates” in Brussels, and any country attempting to confiscate Russian property. Moscow has also hinted at countermeasures, including seizing Western corporate assets in Russia.
Russia insists any use of its sovereign assets violates international law and the principle of sovereign immunity.
It vows to challenge such moves in international courts and is likely to sue European institutions and financial intermediaries (such as Euroclear) if the assets are used.
Kremlin spokesperson Dmitry Peskov has repeatedly warned of legal consequences for the West and a blow to trust.
“We consider this absolutely illegal, contrary to all norms of international law. It is essentially theft... Appropriate actions will be taken in line with our interests, and we will defend them to the utmost,” he said.
In effect, although the EU’s “reparations loan” proposal (unlike outright confiscation) is an attempt to find a legally safer path, Russia views any targeted use of these funds as unlawful and hostile.
