The European Union is preparing a novel way to finance Ukraine’s war and budget needs in 2026 and 2027 by mobilizing frozen Russian central bank assets—without crossing the legal red line of outright confiscation. The plan, centered on Euroclear in Belgium and a European Commission-issued “Reparations Loan,” aims to turn immobilized Russian funds into immediate support for Kyiv while preserving Moscow’s legal claim to its principal.
At stake is up to €165 billion of the roughly €210 billion in Russian sovereign assets frozen in Europe since the invasion, part of an estimated $300 billion held worldwide. The EU’s approach tries to reconcile international law—which protects sovereign assets from seizure—with Ukraine’s urgent financing gap and Europe’s political commitment to sustain Kyiv through a long war.
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The core mechanism rests on Euroclear. At the outset of the war, the Belgian central securities depository held Russian central bank bonds. As those securities matured, the proceeds became trapped at Euroclear under EU sanctions. Rather than leave the cash idle, the Commission proposes a compulsory swap: Euroclear would invest the Russian cash into zero-coupon bonds issued by the Commission itself. Under the legal arrangements governing the assets, Russia retains title to the principal but not to the interest earned. That is why the new Commission bonds can carry a zero coupon—there is no interest claim to recognize on Russia’s side.
This is not confiscation. On the balance sheet, Russia’s claim would shift from “cash at Euroclear” to “AAA-rated Commission bonds of equivalent value.” The EU would then use the cash released by selling those bonds to issue a Reparations Loan to Ukraine in tranches across 2026 and 2027. Crucially, Kyiv would not be required to repay the loan until it receives war reparations from Russia under a future peace agreement, allowing Ukraine to spend now rather than wait for Moscow to pay later.
How much money could be mobilized? In Europe, about €210 billion of Russian central bank assets are frozen, including roughly €185 billion at Euroclear. Of the Euroclear total, some €176 billion has already converted into cash as bonds matured, with another €9 billion in securities set to mature in 2026 and 2027. The Commission initially aimed to base the loan program on Euroclear assets alone. Belgium, however, wants the remaining €25 billion in Russian sovereign assets frozen elsewhere in the EU to be counted as well.
That complicates the design. Unlike the Euroclear pile—where the interest claim is separated from the principal—most of the approximately €18 billion held outside Belgium, largely in French banks, accrues interest that belongs to Russia. The Commission’s proposal also dovetails with an earlier Group of Seven (G7) arrangement: a €45 billion loan agreed last year to keep Ukraine liquid until mid-2026. Because some frozen assets may first backstop repayment of that G7 facility, the effective envelope available for the EU Reparations Loan is closer to €165 billion.
Disbursement will be staged. Of the G7 loan, €25.3 billion has been paid out, with more expected in the first quarter of 2026 to bridge Ukraine’s needs before the EU mechanism is ready. The Commission envisions deploying €90 billion to Kyiv over 2026 and 2027, with the option to scale up if necessary. Brussels estimates Ukraine will require €135.7 billion across those two years and expects non-EU partners to help fill the remaining gap.
The legal architecture is designed to minimize the risk to EU treasuries while withstanding court challenges. Russia would retain its claim on the principal. The “compulsory transaction” substituting Commission paper for cash is framed as a change in asset form, not a transfer of ownership. For Euroclear, the operational shift is narrow: instead of placing Russian cash in triple-A European Central Bank deposits, it would hold triple-A Commission bonds of the same value. The financing for Ukraine, however, would be immediate—effectively advancing future reparations through an EU-backed loan.
Still, someone must shoulder the contingent risk. If, at some point, the EU had to return the assets to Russia before Moscow pays reparations to Ukraine, the bloc would be liable for whatever has already been transferred to Kyiv. Member states will collectively guarantee that exposure. EU governments moved to contain the main policy hazard on Dec. 12, agreeing that immobilized Russian sovereign assets will remain frozen indefinitely. That eliminates a recurring six-monthly unanimity vote—an institutional vulnerability that could have forced an “accidental” unfreezing if a single capital broke ranks.
With that risk defused, the guarantees would be called upon only if EU governments themselves decided to release the assets before Russia pays war damages—an outcome member states have now made less likely by locking in the freeze. The structure, in other words, puts the political risk where it belongs: on the collective decision to keep the sanctions regime intact.
Moscow has already denounced the proposal as an illegal seizure of Russian property and warned of retaliation. The EU insists the design is fundamentally different from confiscation: Russia’s principal is preserved, and the change in holding—from cash to Commission bonds—is a lawful consequence of sanctions and custodial rules that separate ownership of capital from entitlement to interest. That distinction is not academic. It is meant to protect the legal principle of sovereign immunity, avoid setting an outright confiscation precedent, and reduce the chances of damaging spillovers in global sovereign markets.
There are geopolitical trade-offs. Including assets held outside Euroclear may sharpen legal friction because those pools accrue interest to Russia, and any move to repurpose them raises additional questions. Belgium’s role is pivotal because Euroclear is the largest single custodian. Coordination with the G7 remains essential to avoid duplicated risk and to manage the maturity profile of the various loan tranches. And the EU’s approach presumes a durable consensus to keep Russian assets immobilized as long as the war and its aftermath require—consensus that must hold through elections and budget cycles.
The payoff, if the plan works, is a steady, predictable financial lifeline for Ukraine in 2026 and 2027 that does not depend on annual appropriations drama. The Reparations Loan would make explicit what has become implicit policy in the West: Russia will ultimately bear the cost of its aggression, but Ukraine cannot wait for a peace settlement to fund its defense and basic services.
In the coming months, the Commission will refine the terms, member states will negotiate burden-sharing for the guarantees, and technical work will continue with Euroclear and other custodians. The disbursement schedule—G7 resources in early 2026, followed by EU tranches from the second quarter—maps onto Ukraine’s projected budget needs. Whether the legal finesse survives inevitable challenges, and whether political unity holds, will determine if the EU can convert frozen Russian assets into a durable bridge to Ukraine’s fiscal stability.
By Abdiwahab Ahmed
Axadle Times international–Monitoring.
