Introduction to the EU’s Decision
The European Council meeting resulted in a significant decision: the EU will provide a €90bn loan to Ukraine for 2026-27. This decision has far-reaching implications for Europeans, Ukraine, and the fate of Russian reserves. The loan will be financed through EU debt, leaving Russia’s immobilized central bank assets untouched.
Key Takeaways
The main takeaway from the European Council meeting is that Ukraine has secured a much-needed financial lifeline. The International Monetary Fund (IMF) projects that Kyiv faces a funding gap of roughly €130bn for 2026-27. Without the EU loan, Ukraine would have run out of money to finance the war in Spring 2026, weakening Kyiv’s position in ongoing peace negotiations between the US and Russia.
Ukraine Secures a Financial Lifeline
The €90bn EU loan to Ukraine is a significant development, but another recent European move around Ukraine may be almost as consequential. EU sanctions, including the immobilization of around $300bn in Russia’s central bank assets, need to be renewed every six months with the unanimous approval of 27 member states. This situation gave Russia-friendly member states like Hungary leverage to extract concessions from Brussels in return for their backing. However, Brussels has stripped Budapest of this leverage by immobilizing Russia’s central bank assets indefinitely.
Alternatives to Unanimity
The EU’s decision to immobilize Russia’s central bank assets indefinitely should have required the unanimous approval of EU member states. To get around Hungary’s and Slovakia’s vetoes, the EU Commission invoked crisis-times powers to adopt the measure with the backing of only a qualified majority of member states. The fine print of the EU loan to Ukraine shows how Brussels is increasingly maneuvering to sidestep the veto of reluctant member states on foreign policy.
Fear of Russian Retaliation
It was not just Russia-friendly states that opposed using Russia’s immobilized central bank reserves to grant a loan to Ukraine. Belgium, where 86% of EU-held Russian assets are located, was particularly vocal. Russian threats to confiscate the assets of EU firms still present in Russia may have influenced the stance of Italian Prime Minister Giorgia Meloni, who opposed the issuance of the loan using Russia’s immobilized assets.
Russia’s Central Bank Reserves
Despite the EU’s decision, Russia’s central bank reserves are still not out of America’s reach. The first draft of the proposed US-Russia peace deal showed how US President Donald Trump sees Russia’s immobilized central bank reserves: as a signing bonus. The plan proposed allocating $100bn from these assets to American firms to spend on Ukraine’s reconstruction, with the US government receiving 50% of the profits.
Implications for the EU
The bloc will issue a €90bn loan to Ukraine by raising joint EU debt on capital markets. This is a significant step, as it means that European member states are taking one more step towards the issuance of Eurobonds. The move paves the way for the issuance of more joint EU debt for other purposes, like defense spending or future financial schemes supporting Ukraine’s war effort or the country’s reconstruction.
Conclusion
A €90bn loan is a great first step, but it will not be nearly enough to plug Ukraine’s €130bn funding gap over the next two years. This means that more wrangling over the fate of Russia’s immobilized reserves likely lies ahead. The conclusions of the European Council support this assumption, reserving the right to make use of Russia’s immobilized reserves to repay the loan. This decision marks a significant development in the ongoing conflict, and its implications will be felt for years to come. As the situation continues to unfold, one thing is certain: the fate of Russian reserves will remain a crucial aspect of the conflict, with far-reaching implications for Ukraine, the EU, and the global community.
