A widening cash shortfall and political resistance in Brussels have left the European Union scrambling for alternatives to a stalled loan scheme built on frozen Russian assets. The impasse comes just as Ukraine’s war costs rise and the timeline for new financial support grows alarmingly tight, the New York Times reported.
Why the frozen-asset loan became the centrepiece
For months, European policymakers had rallied behind an ambitious plan to use Russia’s immobilised central bank assets held in Belgium to raise a large, long-term loan for Ukraine. The idea was straightforward in principle. The European Union would borrow around 140 billion euros at zero interest and lend it to Kyiv, with repayment tied to any future reparations from Moscow. By design, this approach would avoid hitting national budgets, protect heavily indebted member states, and send a clear signal to the Kremlin that Ukraine’s war financing would not crumble.
European Commission president Ursula von der Leyen repeatedly described the loan as the most effective way to stabilise Ukraine’s defence and economy. Officials also liked the optics. A massive, single injection of funds would advertise strategic resolve at a moment when battlefield momentum remains uncertain and global attention is shifting.
Belgium unexpectedly blocked the plan
Those expectations collided with domestic politics in Belgium. At the last political meeting where approval was expected, Belgium abruptly refused to move forward. Belgian officials feared potential lawsuits or retaliatory claims if Russia challenged the use of its assets, and they demanded broader guarantees from other European governments to share the legal and financial risks.
Slovakia, led by Prime Minister Robert Fico, pushed back immediately, especially if the money would be used for military purposes. Brussels diplomats were stunned. The entire design of the plan depended on Belgium’s cooperation because most of the frozen Russian reserves sit under Belgian jurisdiction. Without Belgium, the structure collapses.
Europe’s fallback options look far worse
The European Commission responded with a letter outlining alternatives, but none of them are politically or financially attractive. One option is joint European Union borrowing, similar to the pandemic-era recovery fund. But interest costs would be high, national parliaments may resist another shared debt programme, and governments already wrestling with deficits are reluctant to commit.
Another option is for individual member states to provide direct grants. This would place the financial strain squarely on countries that are already tightening budgets and preparing for elections. Officials in Brussels openly admit that these backups would produce smaller, slower and less decisive flows of money to Ukraine.
Experts warn that the longer Europe debates alternatives, the stronger President Vladimir Putin’s belief becomes that time favours Russia. Analysts at the Eurasia Group say disunity over Ukraine’s financing sends a strategic signal that Europe’s political appetite for long-term support may be weakening.
The legal and geopolitical risks complicate everything
Russia has already threatened Belgium through its state media, warning that it could pursue the country legally. Although the European Union argues that using assets as collateral is not the same as seizure, Moscow refuses to accept that distinction. Even within the Commission, officials acknowledge the risk that investors could perceive the frozen-asset loan as de facto confiscation. That perception could make other countries nervous about keeping reserves in Europe.
At the same time, the International Monetary Fund estimates that Ukraine faces a budget gap of about sixty-five billion dollars across 2026 and 2027. European officials say Kyiv will need fresh money by March or April, a deadline that leaves little room for prolonged negotiation. If the frozen-asset plan drags on, the bloc may have to deploy temporary measures to bridge a shortfall next spring.
Internal politics threaten to derail a solution
Belgium’s government is battling its own budget fight, and Prime Minister Bart De Wever faces a potential coalition collapse by the end of December. Any instability in Brussels could freeze progress at the worst possible moment.
Some European officials hope that external partners might ease the deadlock. Norway, which has benefited greatly from high wartime energy prices, has been encouraged by economists to help guarantee the loan. Norwegian lawmakers have shown willingness to contribute, but their finance minister has made clear that Norway cannot be the sole guarantor, leaving the broader question unresolved.
A race against time with no easy answers
The European Union now faces weeks of intense bargaining, legal argument and political arm-twisting. The frozen-asset loan remains the preferred solution not because it is flawless, but because the alternatives are costly, slow and potentially damaging to intra-European unity. With Ukraine relying heavily on European money for basic government functions and battlefield survival, the stakes could hardly be higher.
If European leaders cannot reach a deal before the next major meeting in December, the bloc risks stumbling into 2026 without a coherent financial strategy for Ukraine. And that would send the clearest signal yet to Moscow that Europe’s resolve is fraying just as the war enters a critical phase.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
