The mood was sombre as European leaders took their seats in a spartan conference room in a hotel in Angola’s capital last week. They had travelled to Luanda for an EU-Africa summit, but their attention was elsewhere.
The French president, Emmanuel Macron, dialled in remotely for the hastily convened meeting to discuss a US-backed plan to end the war in Ukraine that threatened to blow up their efforts to throw Kyiv a financial lifeline.
It included a proposal to invest hundreds of billions of dollars of frozen Russian assets in projects that would earn profits for American companies – funds that Europe was seeking to mobilise for Ukraine’s defence.
“It cannot be the case that Europe ends up paying for what Russia has done,” said Polish prime minister, Donald Tusk, after the talks.
After days of frenzied diplomacy, Ukrainian and European officials succeeded in watering down the original draft of the peace plan. A new version stipulates that Russian assets will remain frozen – meaning they cannot be legally sold, transferred or otherwise moved – until Moscow compensates Ukraine for damages.
‘If the EU can’t provide the money, the entire western architecture for supporting Ukraine will collapse’
Balázs Jarábik, political analyst
But just because they are frozen does not mean they cannot be used. For months, European leaders have been trying to formulate a plan to raise a €140bn loan for Ukraine against the value of the Russian assets. As the war approaches the four-year mark, Ukraine is running out of money. The loan would be a lifeline – without it, Ukraine could be critically weakened.
“This is the last card the EU has,” said Balázs Jarábik, a former diplomat and political analyst. “If the EU can’t provide the money, essentially, the entire western architecture of supporting Ukraine will collapse.”
There is just one problem: the Flemish nationalist leader of Belgium.
When Russia invaded Ukraine, western countries responded by freezing Russian assets – from private yachts and real estate to bank accounts and securities belonging to the Central Bank of Russia. Of the €210bn of assets frozen in Europe, most were held at Euroclear, a central securities depository based in Brussels.
As the war dragged on and costs ballooned, European countries began looking for ways to harness the assets. Seizing them outright was illegal, and risked discouraging foreign investment in euro-denominated assets. But the interest they generated could be used.
Last year, Europe began transferring about €5bn in interest to Ukraine and raised a €45bn loan on the basis of that future revenue stream. The proposed reparations loan would go further by using the roughly €190bn to €200bn in Russian reserves held at Euroclear as collateral. Ukraine would repay the loan when and if it receives reparations from Russia after the war.
“It’s financial engineering at its best,” said French economist Nicolas Véron, a senior fellow at the Peterson Institute for International Economics in Washington. “It’s the best way to address the challenge of both Ukraine funding and the immobilised assets and what to do with it.”
The legal risks are low because the underlying assets would remain untouched, Véron said.
Both Euroclear and the Belgian government take a different view. Euroclear has argued it would be seen as a “confiscation” that would harm the reputation of European markets.
Meanwhile, according to Politico, the Belgian prime minister, Bart De Wever, has sent a four-page letter to the European Commission’s president, Ursula von der Leyen, laying out a long list of reasons – from the legal to the political – why his government is opposed.
De Wever claims Belgium could be liable for a massive bill if Russia won the right to reclaim the assets or the loan was overturned. The EU directive freezing the assets held in Euroclear is renewed every six months by unanimous decision of all 27 EU member states. If one country votes against it, Euroclear would be liable to repay the full amount to Russia within days.
Belgium insists it will not sign off on the loan without legally binding guarantees that other European countries will share those risks. De Wever has also complained his country is being unfairly singled out when others, including the UK, are also sitting on frozen Russian assets.
“The fattest chicken is in Belgium, but there are other chickens around,” De Wever said.
Smaller sums held in countries such as Canada, France, Japan, Luxembourg and Switzerland amount to about €100bn. However, those assets are, according to experts, difficult to engineer into loans.
Other options for funding Ukraine are even less palatable. Ukraine needs €135bn over the next two years, according to a letter sent by Von der Leyen to member states this month outlining alternative ways to raise the funds. About 60% of that would go towards purchasing military equipment such as long-range artillery ammunition, missiles and air defence systems.
The rest would be used to stabilise the country’s battered economy, enabling the government to fix damaged critical infrastructure and pay public sector wages and pensions.
Cash grants would require member states to draw on stretched national budgets, while joint borrowing would be expensive. “Clearly there are no easy options,” she wrote.
The failure to agree on a formula has exposed the limits of European support for Ukraine after the Trump administration all but stopped funding for Kyiv. It has also put Euroclear at the centre of a geopolitical struggle that is intensifying with the efforts to end the war.
“You can’t use the same pool of money twice,” said Brad Setser, a senior fellow at the New York-based Council on Foreign Relations. “If Europe wants to assure that the US doesn’t come up with alternative uses for the money, [it must lock] it up in this kind of a loan or any kind of structure where the money is committed to Ukraine.”
The European Commission’s chief spokesperson, Paula Pinho, said in a briefing with reporters last week that work on providing Ukraine with reparations loans was “even more urgent now, also against this background”. But renewed efforts to broker peace may make it harder to persuade Belgium and other reluctant member states to bear the risk.
The proposal to invest the frozen assets in projects from which the US would reap profit bears the hallmark of Kirill Dmitriev, the Russian sovereign wealth fund manager, who has been at the heart of the negotiations.
By dangling the prospect of financial reward, Russia has sought to get the US buy-in for a proposal to end the war broadly on its terms. “Moscow understands that [Donald] Trump wants to see dollar signs in any deal,” said Anton Barbashin, a visiting researcher at the European Council on Foreign Relations.
Vladimir Putin is seeking a deal with the US to end the war on Moscow’s terms.
Now that the peace plan has been amended to reflect what Ukraine and its allies want, however, Moscow says the terms are no longer acceptable.
With Russian forces advancing at their fastest pace since 2022, Vladimir Putin has little incentive to compromise on the core aims of the invasion. At the same time, Ukraine’s government is under severe strain from a corruption scandal that has implicated a number of president Volodymyr Zelensky’s inner circle.
“Moscow is in a position where evidently they are ahead of Ukraine on the battlefield, [and] economically speaking they are more solid,” Barbashin said. “America [is] ready to pull the plug on support and the Europeans are not able to find additional money to support Ukraine long term.”
Time is running out. European leaders hope to be able to sign off the deal at the European Council meeting in mid-December. Ukraine’s survival as a sovereign state may depend upon it.
Photograph by Vitalii Nosach/Global Images Ukraine via Getty Images. Other picture by Getty