Frozen assets, frozen resolve: Europe’s Ukraine dilemma

Russia’s war on Ukraine is increasingly likely to end next year — and on terms deeply unfavourable to Kyiv. That bleak forecast by Politico follows last week’s failure by the European Union to agree on using Russia’s frozen sovereign assets — some €210 billion — to keep Ukraine financially solvent and able to sustain its war effort.

At the heart of the problem was the collapse of the so-called “reparations loan,” a proposal to recycle Russian funds, most of which are frozen in a Belgian clearing bank, into guaranteed financing for Ukraine. Its rejection deprives Kyiv of predictable funding over the next two years — a critical period as US support dwindles.

The plan was undone by Belgium’s legal anxieties, alongside French President Emmanuel Macron’s and Italian Prime Minister Giorgia Meloni’s reluctance to back German Chancellor Friedrich Merz, who had championed the idea. That resistance persisted despite weeks of wrangling and inflated expectations from proponents, including European Commission President Ursula von der Leyen.

The EU did, however, agree to a fallback: jointly borrowing €90 billion from capital markets, secured against the EU budget, and lending it to Ukraine on a no-interest basis. Belgian Prime Minister Bart De Wever hailed the deal — reached after nearly 17 hours of negotiations — as a “victory for Ukraine, a victory for financial stability … and a victory for the EU.”

Yet the reality is less reassuring. The funds will be spread over two years and won’t be enough to keep Ukraine fully in the fight.

According to International Monetary Fund projections, Ukraine’s budget shortfall over that period will be closer to $160 billion due to reduced US financial support. Europe will need to do far more — and that’s becoming politically and financially harder.

Some leaders remain optimistic. Finnish President Alexander Stubb noted that the loan would still be linked to immobilised Russian assets, writing on X:

“The immobilised Russian assets will stay immobilised … and the union reserves its right to make use of the immobilised assets to repay this loan.”

Others suggest follow-on loans could be added later. But such confidence may be premature, since everything hinges on the terms of any eventual peace deal.

Securing another package will be difficult once Ukraine’s coffers run low again. Hungary, Slovakia and the Czech Republic already opted out of the joint-borrowing scheme. More could follow, especially with France and Germany heading into pivotal elections in 2027 — and with Donald Trump still in the White House, leaving little hope of renewed US assistance.

From Moscow’s perspective, the message is clear. As Ukrainian President Volodymyr Zelenskyy warned while lobbying for the reparations loan: “If Putin knows, that we can stay resilient for at least a few more years, then his reason to drag out this war becomes much weaker.” Europe failed to send that signal.

Instead, the Kremlin is likely to conclude that time is on its side. Russian President Vladimir Putin can see Europe’s divisions — and its public fatigue.

A recent POLITICO poll of 10,000 respondents found voters in Germany and France more inclined to cut aid to Ukraine than Americans. In Germany, 45 per cent favoured reducing support, versus 20 per cent who wanted to increase it. In France, 37 per cent wanted to give less, compared with 24 per cent who wanted to give more.

Ahead of last week’s European Council meeting, Estonian Prime Minister Kristen Michal told Politico that leaders had a chance to rebut Trump’s claim that Europe is weak — even a “decaying group of nations.” By unlocking frozen Russian assets, they could have proved otherwise. That opportunity, for now, has been missed, Politico says.

By Sabina Mammadli