With reparations loan for Ukraine, the EU defies both Putin and Trump

The European Union is drawing a line.

After being sidelined by the White House in direct negotiations with Russia over the fate of Ukraine, Europeans are looking to muscle their way back to the negotiating table.

One card they are yet to play is the €210 billion in assets of the Russian Central Bank that have been immobilised under EU sanctions since February 2022.

Under a scheme without precedent in modern history, the EU intends to channel the Russian assets into a zero-interest reparations loan to support Ukraine’s financial and military needs for 2026, 2027 and possibly beyond.

Kyiv would be asked to repay the loan only after Moscow ended its war of aggression and agreed to compensate for the havoc wreaked across the country.

The plan to make Russia pay, which has been in the works since September, came close to being hijacked last month in a 28-point plan secretly drafted by US and Russian officials that established the initial terms of a post-war framework.

Many of the points reflected in the document came as a shock to Europeans, who saw them as overtly favourable to Russia and detrimental to Ukraine. Far from a peace deal, it looked like the prelude to capitulation.

For Europeans, a controversial Point 14 of the plan drew surprise and ire as it suggested splitting the immobilised Russian assets into two separate investment vehicles that would have allowed both Washington and Moscow to profit commercially.

Instead of paying reparations, the Kremlin would stand to make a financial gain. Point 14 also highlighted how the US administration, under President Donald Trump, increasingly sees foreign policy through a commercial lens.

For the EU, the leaked draft intensified the urgency to close ranks and keep its most powerful leverage, the immobilised Russian assets, close to its chest.

“If we are serious about this, we cannot leave it to non-European states to decide what happens to the financial resources of an aggressor state that have been lawfully frozen within the jurisdiction of our own rule-of-law and in our own currency,” German Chancellor Friedrich Merz said in a new op-ed published Wednesday.

“The decisions we make now will shape Europe’s future.”

Meanwhile, in Brussels, European Commission President Ursula von der Leyen pushed ahead and presented the legal texts necessary to make the reparations loan a reality.

By far, the most eye-catching element of the multi-pronged packageis a new law that would prohibit the return of the sovereign assets to Russia. It would work in parallel to the existing sanctions and add another layer of predictability.

The ban is based on Article 122 of the EU treaties, which was used in the past to deal with economic emergencies, such as the energy crisis. Crucially, Article 122 only requires a qualified majority, so it would override the unanimity policy that so often stalls collective action and leaves the bloc in the hands of Hungary.

The ban, if approved, would be revised every 12 months and set a very high bar: the assets would be released when Russia’s actions “have objectively ceased to pose substantial risks” for the European economy and Moscow has paid reparations to Ukraine “without economic and financial consequences” for the bloc, the text says.

A new qualified majority would be required to trigger the release.

In practice, this means that the Russian assets would remain firmly immobilised for the foreseeable future and be shielded against individual vetoes from member states that might be tempted to break ranks under external pressure.

Divide-and-conquer tactics would lose their efficacy, and consensus by the 27 capitals would prevail to settle the fate of the €210 billion, regardless of what is written in a leaked document or discussed in closed-door meetings.

“This reparations loan (…) will contribute positively to peace negotiations because it is a leverage that makes very clear that we are in for the long haul with Ukraine,” von der Leyen said during the presentation.

“It is a very clear message also to Russia that the prolongation of the war on their side comes with a high cost for them. And on the other hand, it puts Ukraine in a position that it is secured financially (…) so that they are in a position of strength in these negotiations.”

Still, the Commission is facing the fierce resistance of Belgium, the prime custodian of the assets, as it heads into an eleventh-hour meeting between the Belgian prime minister, the German Chancellor and von der Leyen on Friday evening.

In many ways, EU scholars suggest the Commission has exhausted all the leeway that the legal parameters of the treaties can offer. Now, it all boils down to politics.