Reparations loan from Russian assets: Kallas puts pressure on the EU despite Moscow's threats

Why the dispute over the "reparations loan" turned into a test of strength for the EU

Kaia Kallas – Prime Minister of Estonia

Against the backdrop of Russia's war against Ukraine, the diplomatic corridors of Brussels are discussing not only battle maps, but also figures worth hundreds of billions of euros: it is the frozen Russian assets that should become the basis for the so-called reparations loan for Ukraine. After Moscow began to intimidate the European Union with lawsuits and "mirror" measures, the Prime Minister of Estonia and future high-ranking EU official Kaia Kallas publicly stated: a solution to such an instrument will be found, despite the threats of the Russian Federation, because there are practically no other realistic options for sufficient financing of Ukraine for 2026-2027¹ At stake is not only Ukraine's defense capability, but also Europe's ability to prove that the aggressor will really pay for the damage caused, and not in the abstract "after the war", but now.^{1 8} .

What Kaia Callas said in Brussels

Before one of the key meetings in Brussels, where financial mechanisms for supporting Ukraine were discussed, Kaia Kallas emphasized that a reparations loan secured by frozen Russian assets is currently the most reliable option for financing Ukraine's needs in 2026–2027.^{1 8} She stressed that other models - classic issuance of common EU bonds or purely voluntary contributions from member states - have already been tested and have proven politically vulnerable: not all states are ready to shoulder an equal fiscal burden, and there is a lack of consensus for new common debt instruments.^{8 11} .

Kallas separately recalled that EU leaders faced a similar dilemma two years ago when they discussed the option of joint bonds for Ukraine, but the initiative stalled precisely because of the unanimity requirement.¹¹ The reparations loan, in her opinion, is more politically stable: the decision on it can be made by a qualified majority, and the funds themselves will not come directly from the pockets of EU taxpayers, as they will be based on the use of frozen Russian assets.^{1 8} .

What is a "reparation loan" and how does it differ from a regular loan?

The reparations loan is an instrument proposed by the European Commission that allows raising funds for Ukraine against the collateral of frozen assets of the Central Bank of the Russian Federation and other Russian structures in the EU, primarily in the Belgian depository Euroclear.^{6 11 14} Under this scheme, the EU, either jointly or through the European Commission, borrows on the markets or issues a loan to Ukraine, receiving a guarantee in the form of Russian assets; Kyiv has to repay the principal amount not at its own expense, but after Russia pays it reparations for the damages caused by the war.^{6 14} .

Formally, these assets are not confiscated: the ownership legally remains with the Russian side, but they are "immobilized" - that is, blocked until the conditions related to the cessation of aggression and compensation for damages are met.^{6 14} This construction allows the EU to claim that it does not violate the basic principle of sovereign immunity, since it does not withdraw the reserves themselves, but only uses the revenues from them and their collateral potential.^{11 14} For Ukraine, this is a chance to receive significant financial resources in the coming years, without waiting for long peace negotiations and classic reparations procedures.^{12 19} .

Scale: what amounts are involved and where will they come from?

According to the European Commission and specialized European publications, approximately €210 billion of Russian sovereign assets are frozen within the EU, of which about €140 billion are placed in Euroclear, and another approximately €25 billion are in bank accounts in France, Belgium, Germany, Cyprus and other countries.^{6 11 14} The reparations loan itself is being considered at around €140 billion (equivalent to $160–165 billion), which is to be part of a wider support package for Ukraine worth up to €210 billion, which also includes a previously agreed G7 loan of €45 billion.^{11 15} .

The EU is already using excess profits (interest and other income) from frozen assets to finance military and macro-financial assistance to Ukraine, the amount of such funds is estimated at €3–5 billion annually.^{6 11} However, this is not enough to cover the projected needs for 2026–2027, which the IMF and the European Commission estimate at tens of billions of euros annually.^{11 19} That is why the “simple” scheme of using only excess profits is complemented by the idea of ​​a large loan secured by the assets of the Russian Federation itself.¹⁴ .

Why is Belgium's position so important?

Kallas emphasized that, despite the possibility of a qualified majority decision, Belgium's vote is fundamental for her: the majority of frozen assets are concentrated in this country, and it is it that bears the greatest risk of possible claims from Russia.^{1 8} This is not just a diplomatic gesture, but an acknowledgement of a real burden: the Belgian financial infrastructure, primarily Euroclear, will be the first to find itself at the epicenter of any judicial or political attacks by the Kremlin.^{4 6 14} .

Brussels has already become one of the loudest critics of the idea of ​​a "reparations loan", stating the threat of multi-billion claims if Euroclear is unable to return the funds to the Russian central bank after the sanctions are lifted.^{16 17} Belgium insists on "reinforced concrete" guarantees that all risk will be shared among EU countries, and not fall on one member of the Union^{16 17} It is this factor that has so far slowed down the transition from political statements to the final legal registration of the credit instrument.^{11 16} .

How Russia's threats are trying to disrupt agreements

Russia is already openly threatening EU countries with lawsuits, the seizure of Western assets on its territory, and other measures in response to plans to use frozen reserves for the benefit of Ukraine.^{5 13} The Kremlin is trying to extrapolate its own legal reality outward, betting on intimidating individual countries that have a significant financial or corporate footprint in the Russian Federation, or closer energy ties with Moscow.^{13 17} This is not only about Belgium, but also about a number of other countries where Russian capital still plays a significant role.¹³ .

Kallas, responding to these statements, emphasized that for a number of European countries, Russian threats have long become a familiar background, and reminded: this is not the first time Moscow has tried to blackmail the EU with energy, migration flows, or legal procedures.^{1 8} According to her, the key condition for success remains unity: if the EU acts as a coherent political entity, Russia's legal instruments will be significantly weaker than the bloc's collective potential.^{8 11} .

Legal front: will the reparations loan scheme survive the courts?

Brussels understands well that any decision to use frozen assets for a reparations loan will almost certainly be challenged in the courts — both by Russian structures and, possibly, by individual private investors.^{11 14 18} That is why the European Commission, even at the stage of presenting the plan, emphasized that the proposed mechanism, in its opinion, is capable of withstanding legal challenges, since it preserves the formal sovereign immunity of assets and is a temporary measure in response to the international crime of aggression.^{14 18} .

International law experts point out that precedents with Iran, Afghanistan and a number of other countries have already demonstrated that freezing assets as a measure of pressure is permissible in itself, but turning them into an unconditional source of financing for third countries requires careful legal justification.^{12 18} The concept of a reparations loan attempts to answer this: assets are not permanently seized, and the loan is linked to Ukraine's legal right to reparations, which is already recognized by UN resolutions and a number of international courts.^{12 19} .

Reparation loan and other options: why they are considered insufficient

The European Commission's letters to member states outlined three main scenarios: increased bilateral aid, a new package of joint EU debt obligations, and a reparations loan tied to frozen Russian assets.^{11 18} Kallas and a number of Eastern European countries emphasize that the first two options have already shown their limitations: not all members are ready to share the financial burden evenly, and political support for new common debt instruments is much lower than during the COVID-19 pandemic.^{8 18} .

The reparations loan, in their opinion, simultaneously solves several tasks: it provides Ukraine with stable long-term financing, minimizes the burden on the budgets of EU countries, and sends a clear signal to the aggressor that time is not on his side.^{8 11 18} Opponents warn of risks to trust in European jurisdictions as a safe haven for third-country reserves, but their arguments are increasingly balanced by considerations of security and fairness.^{11 16} .

Ukraine: between a financial abyss and a chance for systemic support

For Ukraine, a reparation loan is not an abstract financial innovation, but a response to a very specific problem: a deficit in external financing, which could become critical after 2025.^{12 19} . The IMF and partners warn that without a new large support package for 2026-2027, Ukraine risks facing serious budget gaps, cuts to social programs, and limitations on defense capabilities^{11 19} Currently, excess profits from frozen assets, as well as a €45 billion G7 loan, only partially cover the needs, and they may not be enough in the event of a protracted war.^{11 15} .

The Ukrainian side has consistently promoted the idea that the reparations loan should become an intermediate link between the current regime of freezing assets and their full confiscation in favor of Ukraine in the future.^{12 19} Representatives of the President's Office and the Ministry of Foreign Affairs emphasize that these funds are not "neutral capital", but a resource of the aggressor state, which has already caused losses of hundreds of billions of dollars.^{12 19} In this context, Kallas's position sounds like an articulation of the consensus of that part of Europe that believes that without a clear mechanism that will force Russia to pay, talks about fair reparations will remain declarations.^{1 8} .

The European choice: fear of precedent or a new standard of responsibility

The debate over the reparations loan exposes a deeper divide in the EU — between those who fear setting a precedent for any state holding reserves in Europe and those who see the uniqueness of Russian aggression as a moral and legal basis for exceptional decisions.^{11 16 18} Kaia Kallas, together with partners from Eastern and Northern Europe, insists that if the aggressor does not pay even when its assets are actually in the hands of democratic states, this will become a signal of impunity for other potential violators of international law.^{8 18} .

In turn, opponents point to the danger of undermining confidence in the euro as a reserve currency and in the European financial space as a "safe haven", reminding that today it is about Russia, and tomorrow other countries may become the object of political pressure.^{11 16} . Ultimately, the decision on the reparations loan will be an indicator of which path the EU is taking: preserving the old rules at any cost or cautiously but decisively updating the norms in favor of the victim of aggression.¹⁸ .

What's next: deadlines, summits and possible scenarios

Consideration of the issue of the reparations loan has been brought to the level of EU leaders, who are to make a political decision at a summit in Brussels, where they will discuss a general package of support for Ukraine for the coming years.^{11 12 19} Until then, intensive work continues at the level of foreign and finance ministers, European Commission lawyers and representatives of national governments, who are agreeing on the details of guarantees for Belgium and other countries that fear legal risks.^{16 17} .

Possible scenarios range from full approval of the original reparation loan model to compromise options where its volume is reduced or combined with additional market financing and enhanced guarantees for the institutions involved.^{16 18} . In any case, the core of the political decision remains unchanged: will the EU agree to take the next step in transforming frozen Russian assets into a real instrument for compensating Ukraine for losses? Kallas' words that "a solution will be found, despite the threats of the Russian Federation" now sound like a promise that will soon be tested by a real vote.^{1 8} .

Sources

1. Censor.NET: Kallas says that the reparation loan is the best option for financing Ukraine
2. Ukrinform: Kallas commented on Russia's threats regarding a reparations loan for Ukraine
3. BBC News: EU backs indefinite freeze on Russia's frozen cash ahead of big loan plan for Ukraine
4. RFE/RL: Brussels pushes plan to use frozen Russian assets for Ukraine financing
5. The Guardian: European Commission plans 'reparations loan' to Ukraine using frozen Russian assets
6. CEPR: Euroclear and the geopolitics of immobilized Russian assets
7. Transparency International Ukraine: The European Commission unveils two solutions to finance Ukraine
8. European Truth / UA.News: Reparation loans from Russian assets are the best option for helping Ukraine
9. RBC-Ukraine: Reparations loan for Ukraine nears reality as EU simplifies freeze extension
10. Kyiv Independent / NV: EU–Belgium stalemate on Russian assets 'reparations loan'
11. European Truth: EU removes obstacle behind Belgium blocking Ukraine loan backed by Russian assets
12. Babel / NV: The EU has decided to freeze Russian assets indefinitely
13. Yahoo Finance: Reparations-based loan is the best way to support Ukraine's defense
14. EU Commission Press Corner: Commission unveils two solutions to support Ukraine's financing needs
15. Radio Free Europe: Financial package of up to €210 billion for Ukraine explained
16. BBC News: Belgium urges Europe to drop plan for frozen Russian assets to aid Ukraine
17. Kyiv Independent: Belgian PM renews opposition to Russian frozen-assets reparations loan
18. Politico Europe: Legal challenges around using frozen Russian assets
19. International Monetary Fund: Public estimates of Ukraine's financial needs in 2026–2027