The European Central Bank (ECB) has declined a request to underpin a proposed €140 billion loan to Ukraine that would be backed by frozen Russian state assets held at Euroclear in Belgium, complicating one of the European Commission’s flagship ideas for long-term support to Kyiv.
According to reporting based on officials involved in the talks, the Commission had asked whether the ECB could act as a backstop lender to Euroclear Bank, the central securities depository where the bulk of the immobilised Russian central bank reserves are held. The intention was to ensure that Euroclear would have sufficient liquidity if, at some point, the Russian assets had to be returned following a legal or political decision.
An internal analysis by the ECB concluded that the proposed structure would breach its mandate. By providing liquidity support to Euroclear to cover potential losses on a loan ultimately guaranteed by EU member states, the central bank judged that it would be engaging in a form of direct financing of governments, which is prohibited by the EU treaties. Officials also warned that such an arrangement could carry risks for inflation and for confidence in the central bank’s independence.
The loan under discussion – often described as a “reparations loan” – aims to mobilise up to €140 billion using Russia’s frozen central bank assets as collateral, without formally confiscating the underlying capital. Ukraine would begin repaying only once Russia pays war reparations, with the frozen reserves serving as a guarantee in the meantime. The concept has been promoted by Commission President Ursula von der Leyen as a way to sustain financial assistance to Ukraine without further stretching national budgets in member states.
The EU has immobilised around €210 billion in Russian central bank assets since the full-scale invasion of Ukraine, most of it at Euroclear. Member states have already agreed in principle to channel the windfall profits generated by investing those assets – estimated at several billion euro per year – to Ukraine. The reparations loan would significantly scale up that approach by leveraging the underlying asset stock rather than just its income, raising more complex legal and financial questions.
In response to the ECB’s position, the European Commission has begun working on alternative options to provide temporary liquidity for any future loan to Ukraine that may still rely, in part, on the frozen assets. These options include a bridge facility financed by EU borrowing backed by the common budget, and expanded use of bilateral instruments between individual member states and Kyiv, in case consensus on the reparations loan cannot be reached.
Belgium, where Euroclear is based and which collects significant tax revenue from the profits generated by the frozen Russian funds, has emerged as a key opponent of the current scheme. Brussels has argued that the design fails to reflect earlier Belgian concerns about the legal and financial risks of using the assets as collateral. Prime Minister Bart De Wever has warned that, if sanctions were lifted or annulled and Russia regained access to its reserves, Euroclear might not be able to return the funds quickly without robust guarantees from other member states.
Belgium is pressing for “legally binding, unconditional, irrevocable” guarantees from the other 26 EU countries to share any losses that might arise from the loan. It also wants a clear backstop mechanism in place before leaders meet at the next European Council to decide how to continue funding Ukraine. Without such safeguards, Belgian officials argue, the risks for Euroclear and for their domestic financial system are unacceptable.
The debate comes as the EU races to ensure stable funding for Ukraine into 2026. Previous reports have indicated that European capitals are working on a “plan B” in case agreement on the use of frozen Russian assets cannot be reached, amid concerns that Kyiv could face a significant financing gap early that year. The pressure has increased as some donors, including the United States under President Donald Trump, have reduced or halted direct budgetary support, leaving Europe to shoulder a larger share of the burden.
Russia has repeatedly warned that any move to use its frozen reserves, even indirectly, will trigger legal action and possible retaliation against European assets in Russia. Senior Moscow officials have suggested that litigation over the funds could last for decades if the EU proceeds, adding another layer of uncertainty to the Commission’s attempt to turn the assets into a long-term financing tool for Ukraine.
For now, the ECB’s refusal to act as lender of last resort to Euroclear leaves the reparations loan in question. The Commission is expected to present an options paper to member states setting out different configurations for supporting Ukraine’s budget and defence, with or without a large, asset-backed loan. EU leaders will ultimately have to decide whether to adjust the scheme to meet the ECB’s concerns, pursue alternative instruments, or combine several approaches to maintain predictable support to Kyiv while remaining within legal and institutional constraints.
