EU’s €140 billion Ukraine loan could have ‘knock-on’ impact on financial markets, Brussels warns

The EU would need to make a “concerted effort” to calm financial markets if the mooted €140 billion loan to support Ukraine using Russian sovereign assets goes ahead, the European Commission has warned.

In a letter sent to EU capitals on Monday, and seen by Euractiv, Ursula von der Leyen presented EU leaders with three options to cover Ukraine’s substantial financing needs for 2026–2027, including the so-called reparation loan – the Commission chief’s preferred option to finance Kyiv’s war effort.

Brussels said its push to use immobilised Russian central bank assets held in Belgium entails a risk of “knock-on effects” if the loan is viewed internationally as a “confiscation”. It emphasised that these assets would be used to lend to Ukraine at zero interest, with repayment conditional on future reparations paid to Ukraine by Russia. EU countries would provide guarantees to cover potential legal or financial risks.

“As this option would be a financially and legally innovative solution, it cannot be discounted that there are potential knock-on effects, including for financial markets,” the Commission noted.

“A concerted effort by the Union, and possibly international partners, to counteract such perception would need to be made,” it added, noting that this “risk can also be further reduced if international partners take similar measures to the reparations loan”.

The concerns echo those long voiced by Belgium, which has warned that the assets’ improper use could spark a mass exodus of investor capital from Europe and harm the reputation of Euroclear, the Brussels-based clearing house holding the assets that would be used for the loan.

Belgian Prime Minister Bart De Wever has also refused to back the scheme unless associated financial and legal risks are shared among EU members, and other Western countries holding Russian assets use them to support Kyiv’s war effort.

Euroclear holds roughly €185 billion of the €260 billion in Russian sovereign assets frozen globally after Moscow’s full-scale invasion of Ukraine in 2022. It is already using interest generated by the assets to support a separate €45 billion loan to Kyiv.

The US, the UK, and Japan all also hold billions of euros’ worth of Russian sovereign assets.

The letter also lays out two distinct alternatives for supporting Ukraine, including bilateral member state grants and raising cash by issuing common EU debt, to plug the war-torn country’s estimated €135.7 billion military and budgetary needs over the next two years.

The first, the most straightforward, would see capitals providing direct grants to the EU, distributed by GNI share, worth around €45 billion annually.

The second would see the EU borrow on financial markets, offering Ukraine a “limited recourse loan” to be repaid only once it receives reparations from Russia, with member states providing guarantees against default.

In the letter, von der Leyen – who said last week that the reparation loan is the “most effective” way of supporting Kyiv – also stressed that the three options are not mutually exclusive and could be combined or sequenced to ensure timely, predictable and sustainable support.

EU leaders are expected to provide political guidance in December on which approach to pursue. “It will now be key to rapidly reach a clear commitment on how to ensure that the necessary financing for Ukraine will be agreed at the next European Council meeting in December,” von der Leyen wrote.

The article has been updated.

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