The EU is considering a new plan to provide loans to Ukraine using Russia’s frozen central bank assets, referred to as “reparation loans.”
Under the proposal, Russia would keep its legal claim on the funds, which would be converted into bonds. Ukraine would receive loans that might not need repayment if Russia fails to cover war damages, according to sources cited by Bloomberg.
The mechanism could also involve guarantees from individual EU countries, potentially bypassing opposition from pro-Russian members such as Hungary.
“There is a willingness to engage constructively” on the so-called reparation loans, EU Commissioner for Economy Valdis Dombrovskis said after a two-day meeting of EU finance ministers in Copenhagen on Sept. 19-20, as reported by Bloomberg.
Ukraine’s war-weakened economy is entering another year of uncertainty, with no clear path yet towards significantly decreasing the budget deficit as Russia’s full-scale invasion continues and ceasefire talks fail to materialize.
The budget deficit is expected to be up to 18.4% of Ukraine’s GDP, while external financing needs reach Hr.2 trillion ($52 billion), Ukraineʼs Ministry of Finance estimated.
The EU and its allies are exploring ways to raise funds as Ukraine’s financial needs grow. The International Monetary Fund (IMF) will provide an estimate in the coming weeks, which will help determine the amount of EU aid that can be provided, depending on the participation of the US and other G7 members.
The EU Commission is advancing a proposal that would not seize the assets, addressing concerns from Euroclear, the Brussels-based clearing house holding the frozen funds, and the European Central Bank, where cash from matured assets is held.
The mechanism by which the funds are converted to bonds would require the approval of national parliaments, one government official told the media outlet. Various details of the proposal are still being worked out.
One option under consideration is for member states to provide guarantees bilaterally, which could bypass a possible veto from countries like Hungary, which has slowed efforts to support Ukraine.
The loans aim to support Ukraine as the war continues, as Ukraineʼs Finance Minister, Serhiy Marchenko, flagged an $18.1 billion financing gap for 2026. EU officials hope the plan could also pressure Russian President Vladimir Putin toward negotiations, Bloomberg wrote.
“We are not proposing confiscation of Russian sovereign assets,” Dombrovskis said on Friday. “We are proposing that Russia’s claim on those assets remains in place, but we’re using cash balances which have accumulated.”
Western countries have generated about €175 billion ($206 billion) from Russia’s frozen assets. Around €45 billion (over $50 billion) is already being used in a separate G7 aid program for Kyiv under the Extraordinary Revenue Acceleration (ERA) initiative, leaving roughly €130 billion ($153 billion) potentially available for the EU loan plan.
Ukrainian officials are not negotiating a relaxation of existing international aid restrictions with Western partners. Attention is focused on the EU’s ERA Loans program – a $50 billion aid package funded by G7 countries and the EU using frozen Russian assets as collateral.
Officials are exploring whether some of these funds could be used directly for weapons, ammunition and other defense needs, Ekonomichna Pravda reported.
Earlier, the EU announced €6 billion ($7 billion) in support for Ukraine’s drone production, funded by interest generated from frozen Russian assets.
The EU froze roughly €200 billion ($232 billion) of Russian central bank assets in 2022, with about 90% held by Belgium-based Euroclear, which settles securities trades.