BRUSSELS (AP) — European Union leaders agreed Friday to provide Massive interest-free loan to Ukraine to meet their military and economic needs for the next two years.
The heads of state of the 27-nation bloc planned to use some of the 210 billion euros ($246 billion) in Russian assets frozen in Europe, mainly in Belgium. But despite working through the night until Friday morning, they failed to convince Belgium that the country would be protected from any retaliation from Russia if it supported the “reparation loan” plan.
They settled on an alternative: borrowing $106 billion from the capital markets.
After nearly four years of war, Ukraine will need 137 billion euros ($161 billion) in 2026 and 2027, the International Monetary Fund estimates. The government in Kyiv is on the verge of bankruptcy and desperately needs money by spring to pay for everything from ammunition to infrastructure repairs.
Here's what you need to know about the loan.
The EU will take on the debt
European Commission President Ursula von der Leyen put forward two proposals at Thursday's summit that would help keep Ukraine afloat.
The first plan was to use some of the 210 billion euros ($246 billion) in Russian assets that were frozen in Europe, mainly in Belgium. The money was frozen due to EU sanctions imposed on Moscow after it launched a full-scale war in 2022.
Leaders such as German Chancellor Friedrich Merz and French President Emmanuel Macron have backed this first option, especially since this financing method would require support from two-thirds of the EU's 27 countries.
This majority was expected to be much easier to achieve politically than the complete unanimity required by the EU's founding treaty for the second option: borrowing money from the capital markets.
But all through the long night Belgian Prime Minister Bart de Wever refused to budge for a reparation loan. It was Hungary, whose leader Viktor Orban had long opposed Brussels’s acceptance of Ukraine, that compromised.
The European Council said it would use Article 20 of the European Treaty to allow the EU to assume the debt of an interest-free loan to Ukraine.
This is a simpler and possibly safer solution than damage loans. This is also similar to how The EU took on a debt of 750 billion euros following the COVID-19 pandemic into a giant economic recovery fund. Heavy borrowing has become the hallmark of von der Leyen's administration.
Emissions protected from financial burden
Not all countries agreed to the loan package. Hungary, Slovakia and the Czech Republic refused to take on debts for Ukraine, but a deal was reached in which they were not blocked from the loan package and were promised protection from any financial consequences.
Orban, a close friend of Russian President Vladimir Putin closest ally in Europe declared a double victory at the summit in a post on X.
“We prevented Europe from declaring war on Russia using Russian assets” and “we managed to protect Hungarian families” from additional debt, he said. He estimates that the damage to Hungarians would be 1,000 billion Hungarian forints or $3 billion.
Orban praised the cooperation of Hungary, Slovakia and the Czech Republic, which were relieved of the financial burden of the loan to ensure the unanimity required by the EU treaty.
But Czech Prime Minister Andrej Babis on Friday distanced himself from Slovakia and Anti-Ukrainian position of Hungary during the summit and stated that Prague simply could not afford the additional debt.
The use of Russian assets is still in question
The plan to use frozen Russian assets stalled at the summit as De Wever rejected it as legally risky. He warned it could harm the business of Euroclear, the Brussels-based financial clearing house that holds 193 billion euros ($226 billion) in frozen assets.
Belgium was alarmed last Friday when the Russian Central Bank launched claim against Euroclear prevent the provision of loans to Ukraine for its money.
But while the reparations loan has been deferred, the use of frozen assets remains an open question.
The EU said the assets would remain frozen until Russia paid war reparations to Ukraine. Ukrainian President Volodymyr Zelensky said it would cost more than 600 billion euros ($700 billion).
“If Russia does not pay reparations, we will – in full compliance with international law – use Russian immobilized assets to repay the loan,” Merz said.
EU leaders agreed that “this loan will be repaid by Ukraine only after Russia compensates Ukraine for the damage caused by its war of aggression. Until then, Russia's assets will remain immobilized and the EU reserves the right to use them to repay the loan in accordance with EU and international law,” the statement said.
Council President Costa said the EU “reserves the right to use immobilized assets to repay this loan.”
Few people believe that Russian President Vladimir Putin will pay reparations, so the assets may well remain in Europe and end up in Ukraine.
What will the loan be spent on?
At a press conference on Friday in Warsaw, Zelensky said the loan gives Ukraine “financial confidence for the coming years” and said it would be spent either on reconstruction or on weapons.
“If Russia prolongs this war—and that is exactly the message the whole world is hearing from Moscow as they continue to threaten us—we will use these assets to defend ourselves if the war continues,” he said. “If the world forces Russia to make peace, we will use these funds exclusively for the restoration of our country.”
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Associated Press writers Karel Janicek in Prague, Justin Spike in Budapest and Ilya Novikov contributed to this report.
