Frozen assets: Hard compromises in the European Council

Is the reparations loan really off the table?

By spring 2026 Ukraine’s financial resources will run out. By then, it may lack the necessary resources to defend itself against the Russian aggression. The European Union has repeatedly affirmed its support for the membership candidate. Yet this commitment raises a pressing question: how is such support to be financed? In particular, can frozen Russian state assets be lawfully mobilised for this purpose? These legally contested and politically sensitive questions were at the heart of the European Council negotiations on 18 December 2025.

In the final hours of December 18, after extensive negotiations, the Council reached a decision, overcoming both Belgian concerns about using the Russian assets and a Hungarian veto to joint EU debt. Ukraine will receive a €90 billion interest-free loan over the next two years, financed by EU borrowing on the capital markets and backed by the EU budget. However, Hungary, as well as the Czech Republic and Slovakia, will not be held liable for this debt.

Multiple legal options had been scrutinized before the meeting. Dimitri Spieker, an EU and constitutional law expert at the Max Planck Institute for Comparative Public Law and International Law, offers his analysis of the compromise:

“This compromise is a twofold sign of solidarity. On one hand, the Ukraine loan is financed through joint debt. This demonstrates the Member States’ solidarity, even if there remains a grain of salt: the Hungarian veto had to be overcome by exempting Hungary – and in its slipstream a few other Member States – from any financial liabilities. On the other hand, the Member States took Belgian concerns seriously and – for now – avoided using the frozen Russian assets. As the use of these assets was subject to majority voting, Belgium had no real veto. At the same time, Belgium was the most affected Member State with the Russian central bank assets being located in its jurisdiction. Taking Belgium’s concerns seriously thus expresses a strong solidarity among the Member States.”

Yet, Spieker stresses that using the Russian assets is not off the table. If Russia does not provide reparations to Ukraine in order to repay the EU loan, the use of these assets will re-emerge as a solution. Thus, the issue is postponed, not resolved.

What plans were discussed?

Plan A: “Reparations loan” financed by Russian assets

The Commission’s original proposal – the “reparations loan” – would have used Russian assets currently frozen in financial institutions in the Member States to finance the loan. Key are approx. €200 billion of Russian central bank assets that are currently immobilised on Belgian clearing houses, such as Euroclear.

To narrow things down, the Commission proposed a “loan cascade”. In a first step, the EU would borrow funds from these financial institutions equivalent to the frozen Russian assets. On the “books” of these financial institutions (i.e. their balance sheet) the assets are exchanged from “cash” to “debt instruments” of the EU. While Russia’s claim to these assets remains intact, it cannot be enforced while the assets remain frozen. In a second step, these borrowed funds are lent to Ukraine.

This loan would not be repaid to the financial institutions until Ukraine has repaid its loan to the Union on the basis of Russian reparations. Of course, such reparations are not expected.

For all of this to work, Russian assets must remain frozen until any future reparation is made by Russia.

Plan B: Loan financed by EU borrowing

In response to mounting opposition, especially by Belgium, Plan B emerged as a more conventional alternative. Under this scheme, the Ukraine loan is financed by EU borrowing on the capital markets, i.e. joint debt, and backed by the EU budget.

Why is Plan A so complicated and controversial?

The “loan cascade” avoids the direct seizure of Russian assets. The obligations of the financial institutions vis-à-vis the Russian Central Bank, once the sanctions are lifted, remain unaltered. On the “books” of these financial institutions there remains an equivalent to the Russian “cash” – namely “dept instruments” by the EU. The legality of any direct use or seizure of the Russian assets would have been highly controversial, especially in light of the principle of state immunity under international law. Under Plan A, amounts equivalent to the Russian funds are only “borrowed” from the financial institutions – they receive a “debt instrument” by the EU in return.

The biggest critic of Plan A is the Belgian government. The clearing houses where the Russian central bank’s assets are frozen are located within the Belgian jurisdiction. Belgium perceives this action as an “expropriation” in violation of international law and fears Russian retaliation. In this spirit, the Belgian Prime Minister stated: “We may wish to believe that the proposed scheme is set up to be in line with international law and, in particular, does not amount to an illegal confiscation. The uneasy fact of the matter is, however, that others will see things differently, and act accordingly.”

Still, Belgium does not have an actual veto. The legal bases to adopt Plan (Article 212 TFEU for the loan and Article 122 TFEU for the freezing of the Russian assets) do not require unanimity. Nonetheless, the value of solidarity in Article 2 TEU speaks in favour of taking the Belgian position into account. The principle of mutual solidarity also applies to the Common Foreign and Security Policy, as Articles 21, 24 or 31 and 32 TEU show. According to Article 24(2) TEU, the Member States shall work together to enhance and develop their mutual solidarity. These provisions contain legal obligations. It is doubtful whether overruling the Belgian government, which bears the primary risk, is in line with this principle.

Is Plan A really off the table?

Ultimately, the European Council decided to take Belgium’s objections into account. The loan, worth €90 billion for 2026-2027, will be financed by EU borrowing on the capital markets and secured by the EU budget. The legal basis for the loan is to be Article 212 TFEU, which regulates economic cooperation with third countries. The necessary measures must be adopted in the ordinary legislative procedure, which only requires a qualified majority in the Council. Beforehand, however, the EU budget must be adjusted by unanimous decision (see Article 312 TFEU).

This seems to be the end of Plan A. Yet, the European Council left a loophole for using the frozen Russian assets. Ukraine will only repay this loan once it has received reparations. It is highly unlikely that this day will ever come. As such, the EU expressly “reserves its right to make use of them [the Russian assets] to repay the loan, in full accordance with EU and international law”.

How was Hungarian veto overcome?

The strongest opponent of any joint debt was Hungary, along with Slovakia and the Czech Republic. To obtain their agreement to Plan B, the European Council opted for “enhanced cooperation” under Article 20 TEU. This tool allows to limit the implementation of certain measures to specific Member States, which take part in the “enhanced cooperation”, while the others are left out. This technique has been used in areas such as EU patents, the European Public Prosecutor’s Office or the financial transaction tax, where only some Member States cooperate. Still, using enhanced cooperation in the EU budget is an absolute novelty.

Much of this construction remains open. What is clear is that the enhanced cooperation will include 24 Member States, leaving Hungary, Slovakia and the Czech Republic outside. Only these 24 Member States will be liable for the EU borrowing. Still, the specifics remain to be ironed out. According to the European Council, the “guarantee” for the EU loan will be the EU budget. As such, it remains entirely unclear how three Member States can be shielded from any financial liability if the guarantee is the EU budget. The European Council only emphasised that this loan “will not have an impact on the financial obligations of the Czech Republic, Hungary and Slovakia”.

What happens now?

The legal basis for the Ukraine loan is Article 212 TFEU. Accordingly, the detailed drafting will now be handled by the EU legislator, i.e. Council and Parliament. Furthermore, changes to the EU budget will have to be made, which have already been proposed by the Commission. This requires a unanimous decision by the Member States in the Council and the consent of the European Parliament.

At the same time, a corresponding regulation on the permanent freezing of Russian assets is to be issued on the basis of Article 122 TFEU. In this case, the Member States can decide in the Council by way of a qualified majority, without the Parliament. 

This FAQ is a translation of a German Version, that was published on 18/12/25, while the European Council was still in session. The German version was supplemented on 19 December after the agreement on the outcomes was reached and updated on 20/12/25.