Can Europe turn Russia’s frozen billions into Ukraine’s wartime lifeline?

EU weighs ‘reparation loan’ for Ukraine backed by frozen Russian assets, aiming to bypass Hungary’s veto as U.S. cuts aid. Plan still at early stage

The European Union is debating a fresh way to support Ukraine’s wartime finances, by using frozen Russian assets to secure a 'reparation loan.' The idea, floated last week by European Commission President Ursula von der Leyen, comes as U.S. President Donald Trump curbs direct American military aid to Kyiv, leaving Europe under growing pressure to fill the gap.

According to officials who spoke to Reuters, Ukraine would repay the loan only once it receives formal reparations from Russia for war damage. Crucially, the scheme would not involve seizing the assets outright, a step some EU members still view as legally or politically unacceptable.

Avoiding the Hungary roadblock

Any EU-wide decision risks being blocked by Hungary, the bloc’s most Moscow-friendly government. Prime Minister Viktor Orbán’s recent Russian oil purchases have already sparked irritation in Washington. To sidestep Budapest’s veto, officials told Reuters the plan could be executed by a “coalition of the willing” rather than all 27 EU states.

“To avoid blackmailing the EU with a veto by some, an intergovernmental agreement would probably be the way to go,” one senior European official said.

Officials noted that Hungary’s absence would have minimal financial impact, given its small economic weight.

The mechanics of the loan

About €210 billion ($250 billion) of Russian central bank assets are currently immobilised in Europe, most of it sitting in cash at Belgian clearinghouse Euroclear. The EU already uses interest from these funds to service a $50 billion G7 loan to Ukraine, but with assets in cash, the returns have shrunk.

The new proposal would involve replacing these frozen assets with zero-coupon bonds issued by the European Commission, guaranteed either by all EU states or only the willing participants. The bonds could then be placed in a special purpose vehicle (SPV), allowing more profitable, long-term investment of the assets.

“This means it will be possible to invest the Russian assets long-term and at better rates,” one EU official told Reuters.

Political risk versus financial reality

The biggest sticking point is the government guarantees. If sanctions on Russia were ever rolled back, Moscow could make legal claims and EU states might be forced to cover the losses. But Brussels believes that risk is remote.

“Under the assumption that the sanctions will remain in place until Russia fully withdraws from Ukraine, including from Crimea, the assets will likely remain frozen for the foreseeable future. That means the guarantee is not very risky,” a second EU official told Reuters.

Early days, big stakes

For now, the plan is still taking shape. “We had a first preliminary discussion of the new loan idea. But so far many things, including the amounts, are not clear,” one senior EU official admitted.

Still, the proposal underlines how Europe is searching for financial firepower as the war grinds on, U.S. support wanes, and Ukraine’s needs grow. If implemented, the scheme could turn Moscow’s immobilised wealth into Kyiv’s survival fund—without crossing Europe’s own red lines.