The European Central Bank (ECB) has refused to approve collateral for a €140 billion ($162 billion) EU reparation loan for Ukraine using seized Russian assets held by the EU.
The European Union’s goal has been to use immobilized Russian assets, matured into a cash pool worth about €175 billion ($203 billion), transfer them into bonds, and then issue a €140 billion loan to Ukraine on behalf of the EU.
The remaining €45 billion ($52.2 billion) would cover the G7 credit from the asset profits, known as an ERA Loan that is helping to sustain Ukraine’s budget during 2025 and partly through 2026.
Belgium is blocking the seizure of the assets, as the country’s Prime Minister Bart De Wever demands legal guarantees for Euroclear if Russia sues it and is concerned about the implications for the monetary system. EU commission officials told FT that the countries cannot accumulate such an amount of money to back Euroclear without risks to financial markets.
While asking the ECB to become a lender of last resort in this case, ECB officials said this is “impossible,” as the EU proposal would “breach the ECB’s mandate” and be “equivalent to providing direct funding to governments.” The latter is prohibited by the EU legislation and the central bank’s philosophy.
The EU Commission is looking for other options to fund Ukraine, the officials told FT.
ECB rejects backstop role
Ukraine and the EU countries are pressing to deploy the Reparation Loan, desperately needed to finance Ukraine’s budget during another year of Russia’s devastating invasion.
The European Commission wanted EU countries to back the repayment risk on the €140 billion loan to Ukraine, sharing the burden.
But commission officials told FT the countries would not be able to raise the cash rapidly in an emergency, and this could put markets under pressure.
To avoid the liquidity crisis, the EU officials decided to ask the ECB. The officials asked the ECB whether it could act as a lender of last resort to Euroclear Bank, the lending arm of the Belgian institution, according to four people briefed on the discussions by FT.
ECB officials told the commission this was impossible, three of these people said.
In its internal analysis, the ECB concluded that covering member states’ repayment obligations, as the commission proposal says, would mean direct funding to the governments, which EU treaties prohibit.
This practice, called “monetary financing” by economists, is banned under EU treaties because it can trigger high inflation and compromise trust in Europe’s central bank. The EU treaty law prohibits monetary financing.
If a central bank funds government spending, it may lose credibility with markets, undermining its ability to manage inflation and maintain financial stability.
In response to the ECB’s refusal, the EU Commission has begun exploring alternative proposals to provide temporary liquidity for the loan. A commission spokesperson told FT it had been “in close contact with the ECB” since October 2022, and the central bank had “participated actively in all the discussions” regarding the loan proposal.
EU eyes options to finance Kyiv
Ukraine is seeking new external financial support as Moscow’s full-scale invasion nears its fourth year, with current financing plans based on the assumption that hostilities would end by 2026.
The EU holds roughly €210 billion (over $243 billion) in frozen Russian assets. Under the EU Commission plan, Ukraine would only repay the loan if Russia agreed to pay reparations.
Ukraine has also discussed the matter with ECB President Christine Lagarde, at least twice in 2025. NBU Governor Andriy Pyshnyi, First Deputy Sergiy Nikolaychuk, and Deputy Yuriy Heletiy raised the issue during meetings at the IMF and World Bank Annual Meetings in October, and in earlier talks with Lagarde in September.
Belgium opposes the reparations loan, citing the risk that sanctions on Russia could be lifted, forcing its clearing house Euroclear, where most of the Russian assets are held, to repay Moscow immediately.
Belgium’s Prime Minister Bart De Wever has said the EU plan is “fundamentally wrong,” and demanded the bloc’s other 26 member states sign up to “legally binding, unconditional, irrevocable, on-demand, joint and several guarantees” to share the risk of repaying the loan, FT reported.
Some EU countries, including Hungary, have questioned the renewal of sanctions. The US is pushing for a peace initiative between Russia and Ukraine, and alternative proposals on frozen Russian assets have also raised concerns.
Previously, the IMF urged caution on the EU’s planned reparations loan for Ukraine, warning of “any implications for the international monetary system.”