The EU Reparation Loan as Solutio Damni for Ukraine

On the October 2025 European Council, European leaders invited the Fee ‘to current, as quickly as potential, choices for monetary help’ for Ukraine based mostly on using immobilised Russian property. This request adopted greater than three years of debate (see right here, right here, and right here) and culminated in Fee President Ursula von der Leyen’s announcement of an formidable Reparation Mortgage initiative throughout her 2025 State of the Union tackle. The proposal envisages financing Ukraine by the money balances of the immobilised property and reserves of the Russian Central Financial institution (RCB) held inside the EU.

The Reparation Mortgage builds on the truth that the EU holds greater than two-thirds of the Russian Central Financial institution’s property and reserves inside the G7—round €210 billion out of €260 billion. In any case, the EU had already frozen RCB property underneath its jurisdiction simply six days after Russia’s invasion of Ukraine, and in February 2024 required all central securities depositories (CSDs) holding over €1 million in Russian property to separate the extraordinary money balances and revenues accrued by EU sanctions from their extraordinary accounting actions. The EU additionally performed a central position within the €45 billion G7-led Extraordinary Income Acceleration (ERA) loans-to-Ukraine initiative, offering Ukraine with an €18 billion mortgage financed by Eurobonds underneath the Distinctive Macro-Monetary Help programme and, extra importantly, assuming full reimbursement accountability for the ERA mortgage by future flows of extraordinary proceeds generated by the immobilisation of RCB property underneath the Ukraine Mortgage Cooperation Mechanism (see right here). It’s due to this fact unsurprising that the EU has quickly turn into the worldwide laboratory for using sovereign property as devices of geopolitical leverage.

Towards this background, this submit analyses the authorized and monetary implications of the Reparation Mortgage initiative and its position in advancing EU fiscal integration. Not like earlier devices, the Reparation Mortgage depends on the extraordinary money balances derived from frozen RCB property—slightly than on the extraordinary earnings they generate—thereby demanding a fragile stability between authorized constraints and geopolitical aims.

The Reparation Mortgage constitutes a sport changer within the EU’s help for Ukraine, for 2 primary causes. First, it offers sustainable and predictable monetary flows for Ukraine’s defence—each to acquire largely US-made weapons and to ramp up home industrial capability (see right here)—one thing that windfall earnings alone have proved far too restricted to attain. So far, the EU has delivered solely three tranches value €4,6 billion to Ukraine (see right here, right here, and right here), with annual proceeds estimated at merely €3-4 billion. In contrast, by bankrolling Ukraine with about €185 billion, the Reparation Mortgage would exceed the €177.5 billion offered by the EU and its Member States over the previous three and a half years (see right here). Second, the Reparation Mortgage goals to fill the navy vacuum left by the US (US) underneath the Trump administration, protecting Ukraine’s navy wants by 2026 and 2027 and guaranteeing multiyear predictability.

The fiscal structure designed by the Fee is each ingenious and operationally advanced. EU-based worldwide CSDs—Euroclear and Clearstream—would subject a syndicated long-term, zero-interest mortgage to the EU equal to the money balances ensuing from frozen RCB property—roughly €185 billion—backed by Member States by their nationwide budgets in proportion to their dimension. An analogous strategy was efficiently used within the €100 billion employment-SURE programme through the Covid-19 pandemic. The reliance on RCB property as collateral cleverly circumvents the authorized impediment posed by outright confiscation, which—not like immobilisation—can’t be justified as a collective countermeasure underneath worldwide regulation owing to its everlasting and irreversible nature (see right here and right here). This identical authorized constraint additionally explains why successive US Presidents have kept away from exercising the authority granted underneath the Rebuilding Financial Prosperity and Alternative for Ukrainians Act (REPO Act) to grab Russian property. It’s due to this fact unsurprising that the Fee President clarified from the outset that ‘the property themselves is not going to be touched’.

At this level, the EU faces a alternative: it might probably both use this mortgage first to repay the €45 billion ERA mortgage after which present the remaining €140 billion to Ukraine—making the Reparation Mortgage a superseding mechanism for the ERA programme—or straight channel the total €185 billion to Ukraine whereas retaining the ERA reimbursement funded by the extraordinary revenues accrued on the money balances. Within the first state of affairs, the EU would probably want to supply a further €52 billion to fill Ukraine’s 2026-2027 funds hole (see right here). Finally, if Russia pays struggle damages, these funds can be utilized by the EU to repay the CSDs. Conversely, if Russia refuses, Member States would repay the CSDs by their nationwide budgets.

EU Member States represent the true guarantors of the mortgage reimbursement to CSDs. Russian property and reserves perform as fictitious collateral: they’re frozen however not confiscated and, by definition, stay destined for return to the Russian Central Financial institution as soon as ‘Russia ceases its struggle of aggression towards Ukraine and compensates it for the harm attributable to this struggle’. In consequence, Member States shoulder a considerable monetary danger—probably being known as upon to repay round €185 billion to CSDs if Russia doesn’t compensate Ukraine. Because the Fee President famous, ‘the danger must be carried collectively’. Above all, Russia could discover it preferable to go away its property immobilised—and economically unproductive aside from restricted extraordinary revenues—underneath EU jurisdiction, thereby compelling Member States to honour the mortgage by taxpayers’ assets, slightly than paying far higher struggle damages to Ukraine. Member States, nevertheless, already face tight fiscal constraints, squeezed between the Stability and Progress Pact parameters and their dedication to extend defence spending to five% of GDP by 2035 after many years of power underinvestments. The Reparation Mortgage due to this fact creates a strong incentive for all Member States to make Russia’s cost of struggle damages a central situation of any future peace settlement.

The correct functioning of the Reparation Mortgage is dependent upon the continued and uninterrupted immobilisation of the RCB property and reserves for the complete period of the mortgage. Whereas the Reparation Mortgage itself can be adopted by certified majority voting underneath Article 212 TFEU, the renewal of the restrictive measures immobilising these property should nonetheless be agreed unanimously each six months inside the Council underneath Article 24 TEU. This creates a structural danger that sure Member States—Hungary in primis—might finally resolve to raise the asset freeze. Though this state of affairs is unlikely—since unfreezing the property would oblige all EU Member States to repay the mortgage to the CSDs on their very own, together with the state vetoing the sanctions—the problem was already voiced by President Biden throughout G7 negotiations in regards to the stability of the ERA programme (see right here). Technically, the EU might get rid of the unanimity constraint by invoking the passerelle clause underneath Article 31(2) TEU. Nevertheless, transferring from unanimity to certified majority voting in CFSP choices—corresponding to sanctions—would itself require unanimous approval by all Heads of State or Authorities inside the European Council, rendering this end result extremely inconceivable.

Whereas the Reparation Mortgage constitutes a artistic authorized mechanism to mobilise Russian property, it doesn’t by itself advance the EU integration course of in the direction of a fully-fledged fiscal capability. The scheme is backed by Member States’ budgets slightly than the EU’s personal funds. A comparable strategy was adopted with the Macro-Monetary Help Plus (MFA+) in 2022, after Hungary opposed an EU-centralised fiscal mannequin. The Reparation Mortgage thus departs from the apply consolidated underneath the Ukraine Facility and the Distinctive Macro-Monetary Help, each of which have been backed by the EU funds’s headroom. The rationale for this nationally pushed strategy lies within the restricted fiscal house of the EU’s Multi-Annual Monetary Framework, which accounts for less than about 1% of the EU’s combination GDP.

The Reparation Mortgage constitutes probably the most technically refined and financially important initiative ever proposed to help Ukraine, demonstrating that Russia’s property can function an distinctive geopolitical instrument to be leveraged to each exert stress on Moscow to finish its illegal aggression and to contribute to the reparation of struggle damages. Importantly, the Reparation Mortgage will check the response of the worldwide neighborhood which, if beneficial, might result in its replication by different G7-members. Criticism has already emerged: Russia has denounced the mechanism as an unlawful act of confiscation prone to be challenged earlier than worldwide courts (see right here), whereas each Belgium and the European Central Financial institution have warned of potential repercussions for the euro’s worldwide credibility and investor confidence, probably fuelling monetary instability (see right here). But, these dangers seem outweighed by the advantages. The Reparation Mortgage would empower the EU to behave decisively and allow Ukraine to maintain its defence proper within the wake of the US withdrawal. Finally, on condition that the EU will probably bear—straight or not directly—the most important share of Ukraine’s reconstruction prices, estimated at over half a trillion euros, the Reparation Mortgage represents not solely a practical but in addition a good start line.