By settling for a “Plan B” style Ukraine relief loan using the EU’s financial creditworthiness instead of making a politically decisive but risky decision to create a mechanism which would tap into the EU’s existing reserve of frozen Russian assets to fund a so-called “reparations loan,” the EU effectively wrote itself out of the latest chapter of the Ukraine war endgame in the early hours of December 19.
Although they were probably already well-prepared for the result, there will be no tears shed in Moscow, or Washington, over the way decisions turned out.
Results are sub-optimal, but ultimately Kyiv will receive the financial resources it needs (a €90 billion loan) to continue its defensive military campaign for the foreseeable future. This is not a Munich-style betrayal of Kyiv by the great powers, but essentially a story of the EU demonstrating itself yet again unable to match its global aspirations with decisive action as the reparations loan that was not approved could have been substantially larger and available in less time. And after the great Brussels success, EU leaders packed up for their winter holidays, along with the entire EU bureaucracy as Christmas approaches. Most observers would simply call this business as usual.
However, EU leaders have noted they would give the European Commission a new mandate to continue working on the technical and legal fine tuning for a potential reparations loan, although it is difficult to see how an agreement could be established given the existing divisions and in view of Belgium’s remaining concerns about debt exposure, although some legal safeguards were reportedly developed by the Commission and seen positively in the December 18-19 debate. Belgium’s Prime Minister Bart De Wever had initially requested “uncapped guarantees” to protect the Belgian repository institution Euroclear against all Russian legal challenges to reclaim frozen assets.
To fund the loan, EU member states will borrow in financial markets, against EU budgetary resources, and pay interest. The Commission said the loan ultimately provided to Ukraine would be free of interest charges from Brussels and explained that Kyiv would eventually repay using reparations cash from Moscow. Since there are no guarantees Russia will ever pay reparations for its invasion, it is possible the loan could be quietly converted to a grant by Commission bureaucrats in the future.
Under a special arrangement, Hungary, Czechia and Slovakia have opted not to participate in the joint debt scheme, obviously scoring political points with Moscow. Hungary’s Prime Minister Victor Orban has repeated multiple times that Ukraine cannot win militarily and will have to make concessions for peace.
After the summit, which ended in the early hours of December 19, following extended negotiations, European Commission President Ursula von der Leyen, accompanied by Danish Prime Minister Mette Frederiksen, announced that the primary goal had been achieved: funding Ukraine.
“The bottom line, after today, is that our support for Ukraine is guaranteed,” Frederiksen told the press, putting a positive message out.
Because the EU could not agree to use frozen Russian assets as collateral or tap them directly, for now Moscow keeps “legal control” over those assets — even if they remain frozen.
This represents a political and economic win of sorts for Russian President Vladimir Putin in terms of negotiating leverage, even if small. Even more worrying, however, is the signal that EU indecision on the reparation loan sends to the Trump administration who may again be planning to negotiate away the unfreezing for the EU’s trove of Russian assets and the return to Moscow of all or part of the money. As outlandish as it seems, this was initially in the November U.S. 28-point peace plan.
But because the EU failed to act decisively at this Summit on a critical part of the Ukraine peace package which it effectively controls and where neither Putin nor U.S. President Donald Trump have a vote in the decision process, both Washington and Moscow may well consider Europe has less political will to defend Ukraine now than previously.
One thing is certain, both Trump and Putin will be reviewing plans on how to transfer some of those assets back to Russian control, instead of funding Ukraine reconstruction projects with all of them, as should be the case.
This may be a fool’s errand, but it will be reviewed by officials in both capitals.
