European Union leaders have agreed to borrow cash to loan €90 billion to Ukraine to fund its war effort against Russia for the next two years – but failed to reach an agreement on the use of frozen Russian assets.
After talks ended in the early hours of Friday, EU summit chairman Antonio Costa told reporters: “We committed and we delivered”.
As part of the agreement, the €90bn loan will be backed by the EU budget rather than using frozen Russian assets, a plan which had sparked divisions within the bloc. Belgium, where the majority of the assets are held, had said the plan was legally and financially unworkable.
Kyiv will repay the loan to the EU only once Russia pays war reparations.
The EU had been locked in talks for months about the legal and financial ramifications of freezing the assets, but caution held up delivery of the plan at a crucial time.
Belgium, which holds the majority of the assets, feared it would have had to pay back everything on its own if Russia successfully challenged the plan. Its backing depended on the EU sharing out responsibility, but this could not be agreed.
Russia had vowed to strike back with “the harshest reaction” against any “illegal action” by the EU around its frozen assets and has called the scheme “theft”.
How would the plan have worked?
The European Commission was seeking to find £80bn ($105bn) for Ukraine through frozen assets or international borrowing. Ultimately, it chose to use the latter which had been referred to by leaders as “Plan B”.
The frozen Russian money – made up of private assets such as yachts and real estate as well as sovereign assets including cash, bonds and securities – would have supported military costs and help cover basic services crippled by nearly four years of conflict. Under the agreement, the assets will still remain frozen.
Ursula von der Leyen, the commission president, estimated the loan would cover two-thirds of Ukraine’s funding needs for the next two years. Other partners could cover the rest, she said.
Britain holds around £25bn of frozen Russian assets, with some €290bn (£250bn) frozen in the West after Russia’s full-scale invasion.
On Wednesday, prime minister Sir Keir Starmer warned Russian oligarch Roman Abramovich that the “clock is ticking” to hand over £2.5bn from the sale of Chelsea Football Club. He told parliament that a licence had been issued to transfer the funds to the people of Ukraine.
Did Belgium scupper the deal?
Leaders had aimed to agree on a reparations loan for Ukraine by October – but hopes were dashed by opposition from Belgium.
Belgium holds most of the assets Europe wants to harness. Euroclear, a central securities depository in Brussels, holds around £160bn. The main issue is that the government is wary that a successful legal challenge could leave the country having to repay the entire amount on its own.
“It would mean bankruptcy for Belgium,” foreign minister Maxime Prevot said.
As such, Belgium sought guarantees from its EU partners that they would share responsibility in the event of any challenge against the state or Euroclear. Otherwise, they suggested the EU borrow the amounts needed on the markets.
Italy, Malta and Bulgaria had also expressed concerns over the scheme and asked the EU to look at alternatives to support Ukraine.
On Wednesday, Italian prime minister Giorgia Meloni said using Russia’s assets without a solid legal basis would hand Moscow “the first victory since the start of the war”.
Moscow’s allies welcome the decision
Germany’s Friedrich Merz came out in favour of equally dividing up responsibility in order to move forward with the plan. Belgium could not reasonably rely solely on political promises and deserves legally binding assurance, he said.
But in the end, the loan based on frozen Russian assets turned out to be too complex or politically demanding to resolve at this stage.
"There were so many questions on the Reparations Loan, we had to go to Plan B. Rationality has prevailed," Belgian Prime Minister Bart De Wever told a news conference. "The EU has avoided chaos and division and remained united," he said.
But the plan has also allowed allies of Moscow - such as Hungary’s Viktor Orban - to claim a diplomatic victory.
"Orban got what he wanted: no reparation loan. And EU action without participation of Hungary, Czech Republic and Slovakia," one EU diplomat told Reuters.
Kirill Dmitriev, Russian President Vladimir Putin's special envoy, said on Friday that "law and sanity" won - in an apparent attempt to taunt the EU for failing to show unity.
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