European Union finance ministers agree that the most effective way to support Ukraine is to issue a so-called reparation loan based on frozen Russian assets. The decision came after discussions on how best to finance future Ukrainian budget and military aid.

The European Commission proposes three options.

The first is for the EU to borrow money on the financial markets and guarantee it with its own budget. The second is for individual member states to borrow money at national level and provide it to Ukraine in the form of a grant. The third, and according to most ministers the most promising way, is a reparation loan, backed by frozen Russian funds.

European Commission President Ursula von der Leyen said this approach was the most realistic. The loan could reach 140 billion euros, which would cover Ukraine's estimated needs for the next two years.

The mechanism would work as follows: most of the frozen Russian assets are held in accounts at the Euroclear depository in Brussels, Belgium. Since the Russian invasion in February 2022, almost all Russian securities have been converted into cash. The European Union would replace this money with bonds issued by the European Commission. The cash would then go directly to Ukraine, which would only repay the loan if it received war reparations from Russia. In practice, therefore, it would be a grant, not a traditional loan.

"This is the only option that is effective enough and at the same time limits the pressure on our national budgets," Finnish Finance Minister Riikka Purra said. Danish Economy Minister Stephanie Lose, who led the negotiations, stressed that this was a top priority.

But the plan is running into serious opponents.

Belgium argues it could face legal action from Russia. The Belgian ministry is therefore demanding legal guarantees from all member states. Should the court decide to return the money to Russia, all countries would undertake to provide Belgium with money to reimburse Moscow within three days.

The Kremlin considers the plan to use the frozen assets as an illegal seizure of Russian assets and has threatened to retaliate.

The European Commission is currently in talks with Belgium to address its concerns. A final decision is expected in December.

(reuters, euronews, sie)