BRUSSELS (AP) — European Union leaders agreed Friday to provide Ukraine with a huge, interest-free loan to cover its military and economic needs over the next two years.
The 27-nation bloc’s head of state plans to use some of the 210 billion euros ($246 billion) worth of Russian assets frozen in Europe, mostly in Belgium. But even though they worked through the night and into Friday morning, they were unable to convince Belgium that it would be protected from Russian retaliation if it supported the “reparations loan” plan.
They chose another option: borrowing $106 billion from the capital markets.
After nearly four years of war, the International Monetary Fund estimates Ukraine will need 137 billion euros ($161 billion) in 2026 and 2027. The government in Kiev is on the brink of bankruptcy and desperately needs the money by spring to pay for everything from ammunition to infrastructure repairs.
Below is information about the loan.
EU will take on debt
European Commission President Ursula von der Leyen brought two proposals to keep Ukraine alive to Thursday’s summit.
The first plan uses some of the 210 billion euros ($246 billion) worth of Russian assets frozen in Europe, mostly in Belgium. The funds have been frozen after the EU imposed sanctions on Moscow after Russia launched an all-out war in 2022.
Leaders such as German Chancellor Friedrich Merz and French President Emmanuel Macron support the first option, especially since this financing method requires the support of two-thirds of the 27 EU countries.
Achieving this majority is expected to be much easier politically than the complete unanimity required by the second option required by the EU’s foundation treaties: borrowing money from capital markets.
But throughout the long night, Belgian Prime Minister Bart de Wever refused to budge on the compensation loan issue. Compromising was Hungary, whose leader Viktor Orban has long opposed Brussels’ embrace of Ukraine.
The European Council said it would use Article 20 of the European Treaty to allow the EU to assume the debt of zero-interest loans to Ukraine.
This is a simpler and potentially safer solution than a compensation loan. It is also similar to how the EU took on €750 billion in debt to build a massive economic recovery fund in the wake of the COVID-19 pandemic. Big borrowing has become a hallmark of von der Leyen’s government.
Outliers are protected from financial burden
Not all countries agreed to the loan package. Hungary, Slovakia and the Czech Republic refused to take on Ukraine’s debt but struck a deal in which they did not block the loan program and pledged to be immune from any financial fallout.
Orban, Russian President Vladimir Putin’s closest ally in Europe, claimed a double victory at the summit in a post on X.
“We did not allow Europe to use Russian assets to declare war on Russia,” and “we succeeded in protecting Hungarian families” from additional debt, he said. He estimated the cost to Hungarians would be 1 trillion forints or $3 billion.
Orban praised the cooperation of Hungary, Slovakia and the Czech Republic, which have all been excluded from the financial burden of the loan, in order to achieve the unanimous consent required by EU treaties.
But Czech Prime Minister Andrej Babis distanced himself from Slovakia and Hungary’s anti-Ukrainian stance during the summit on Friday and said Prague simply could not afford the additional debt.
The issue of using Russian assets remains under discussion
Plans to use frozen Russian assets ran into trouble at the summit after de Weaver rejected the plan as posing legal risks. He warned that this could harm the business of Euroclear, a Brussels-based financial clearing house that holds 193 billion euros ($226 billion) in frozen assets.
On Friday, Russia’s central bank filed a lawsuit against Euroclear, blocking its funds from providing any loans to Ukraine, which upset Belgium.
Although the compensation loan is on hold, the question of access to frozen assets remains.
The EU said the assets would remain frozen until Russia pays war reparations to Ukraine. Ukrainian President Volodymyr Zelensky said it would cost more than 600 billion euros ($700 billion).
“If Russia does not pay compensation, we will use Russian fixed assets to repay the loan in full compliance with international law,” Mertz said.
EU leaders agreed that “Ukraine will repay the loan only after Russia compensates Ukraine for losses caused by the aggressive war. Until then, Russian assets will remain intact and the EU reserves the right to use these assets to repay the loan in accordance with EU and international law.”
Council President Costa said the EU “reserves the right to use fixed assets to repay this loan”.
Few believe Russian President Vladimir Putin will pay compensation, so the assets are likely to stay in Europe and flow to Ukraine.
What the loan will be used for
Zelensky told a news conference in Warsaw on Friday that the loan provided Ukraine with “financial certainty for the next few years” and said it would be used for reconstruction or armaments.
“If Russia drags out this war – and that’s exactly what the world is hearing from Moscow as they continue to threaten us – we will use these funds for defense if the war continues,” he said. “If the world forces Russia to make peace, we will earmark these funds for the reconstruction of our country.”
___
Associated Press writers Karel Janicek in Prague, Justin Spike and Ilya Novikov in Budapest contributed to this report.