90 billion euro poker game in Brussels: The European Union and the financial stabilization of Ukraine

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Published on: December 19, 2025 / Updated on: December 19, 2025 – Author: Konrad Wolfenstein

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Fear of a financial crash: Why the EU is (still) not touching Putin's billions

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The most expensive compromise in EU history: Who will ultimately be liable for the 90 billion euro loan?

A historic feat with a hidden agenda: The EU approves a 90 billion euro package for Ukraine – but the price is a new era of debt and a risky game with international law.

It was one of the longest and toughest nights in Brussels, culminating in a decision that could fundamentally alter the financial architecture of Europe. German Chancellor Friedrich Merz arrived with a clear demand: frozen Russian assets should be used directly to finance Ukraine's defense. But he returned with a compromise that is being touted as a political victory, but raises profound economic questions.

Instead of directly holding Putin accountable, the European Union is once again resorting to the instrument of joint debt issuance – bypassing national debt brakes and defying the warnings of the European Central Bank. While the agreed-upon 90-billion-euro package secures Ukraine's survival until 2027, it is built on a foundation of legal uncertainties and geopolitical gambles. From the fear of a wave of lawsuits from Russian oligarchs to the existential anxieties of the Belgian financial services provider Euroclear, to the invisible influence of the Trump administration: this deal is far more than a mere aid payment. It is a gamble on time, where it remains unclear who will ultimately foot the bill – Moscow, Kyiv, or the European taxpayer.

The following analysis sheds light on the risky details of this financial experiment and shows why Europe's supposed liberation is in reality a ride on a razor's edge.

A provocative financial experiment in the shadow of Putin's calculations

The European Union's decision to provide Ukraine with a €90 billion interest-free loan for the years 2026 and 2027 marks one of the most controversial fiscal decisions in the Union's history. Despite Chancellor Friedrich Merz's demand for the direct use of frozen Russian assets, the EU ultimately retreated to a compromise that reveals the fundamental economic tensions between European adherence to the rule of law and geopolitical necessities. The late-night decision, reached only after several hours of reportedly tense negotiations in Brussels, reflects not a resolution of these tensions, but rather their postponement.

The architecture of the financial package: Joint debt as a last resort

The technical structure of the financing mechanism that has been agreed upon reveals a deeper understanding of current European fiscal realities than is apparent at first glance. Instead of using the frozen Russian assets directly as collateral and a financial basis, as Merz advocated, the EU has opted for a model in which twenty-four of the twenty-seven member states raise joint debt on the capital markets on behalf of the entire Union. This debt is secured by the EU budget, meaning that the risks are borne collectively.

The procedure follows the precedent already established during the handling of the COVID-19 pandemic, under which the EU borrowed a total of 750 billion euros under the name Next Generation EU. The mechanism was politically controversial at the time, particularly in Germany, where the debt brake acts as a constitutional obstacle to direct national borrowing. The current decision replicates this strategy: by having the EU centrally borrow, member states circumvent their national debt limits. Germany benefits economically from the EU's AAA rating but also contributes proportionally to the debt risks without being held accountable under its national debt brake. The political economy of this arrangement involves a subtle shift of governance responsibility to the European level, thereby relieving national parliaments while simultaneously strengthening the EU institutionally.

The use of Russian assets as collateral: Legal complexity instead of clear risk allocation

The peculiarity of the current loan mechanism lies in the fact that while the ninety billion euros are structured as a loan, repayment is tied to a condition: Ukraine only has to repay the money once Russia pays reparations for war damages. This structure creates a scenario with several plausible end states, none of which are truly satisfactory.

In the most likely scenario, Russia will not pay substantial war reparations. In this case, under the current agreement, frozen Russian assets would be used for repayment. However, this creates a legal complication: these assets have not yet been confiscated, but merely frozen. They formally remain Russian property. The EU is thus potentially exposed to the possibility of using the frozen funds permanently without a legally sound basis under international law. The Belgian financial services provider Euroclear, which holds approximately 185 billion euros of these assets, has explicitly warned of enormous liability risks. Should Russia later successfully challenge the appropriation of these assets in international courts, the financial services provider itself could be held accountable.

The Russian central bank has already announced its intention to sue Euroclear before the Moscow arbitration court, seeking damages of approximately 189 billion euros. While this lawsuit has been filed in Russian courts, which lack international authority, it nevertheless signals the geopolitical dimension of this financial package. The lawsuit underscores that Russia interprets the current measures not as temporary sanctions, but as expropriation. This potentially opens a legal debate under international law regarding the legitimacy of countermeasures, a debate the EU may not win.

The Ukrainian budget shortfall: Between war needs and structural weakness

The ninety billion euros represent a vital sum for Ukraine, but they do not cover the country's total financing needs for the specified period. The World Bank estimates the total reconstruction requirement at five hundred twenty-four billion dollars, which is approximately five hundred six billion euros. The Ukrainian government itself states that reconstruction over a fourteen-year period will require more than eight hundred fifty billion euros. Therefore, even with optimistic calculations, the current loan covers only a small fraction of this amount.

The current situation is even more critical: The Ukrainian state budget for 2026 allocates approximately 2.8 trillion hryvnia, equivalent to about two billion euros, to military purposes – this represents roughly 60 percent of all state expenditures. This means that Ukraine is diverting all of its regular state revenues to the military and therefore not only has no reserves for other government functions, but also requires external financing for social spending, education, and infrastructure. The German Ministry of Defense initially requested 15.8 billion euros for its aid to Ukraine in 2026 and 12.8 billion euros in 2027 – this requirement was later reduced to nine billion euros per year in consultation with the Ministry of Finance.

The ninety billion euros from the EU loan must therefore not only support reconstruction, but primarily finance the military operations of the Ukrainian armed forces, stabilize the state budget, and maintain military infrastructure. This makes it clear that Ukraine's current financial situation is existentially precarious and cannot by any means be considered definitively resolved by the EU package.

The shift in the concept of debt: Why Merz sold his defeat as a victory

Friedrich Merz attempted to reinterpret his own political defeat as a strategic victory. His position was that the frozen Russian assets should be used directly to finance reparations loans, not only after the war ended. This would have meant that Russia would be confronted immediately with the material costs of the war, which, according to his logic, would change Putin's calculations. Merz argued that Russia, upon seeing the frozen assets, would realize that the war was not economically worthwhile for Moscow.

The compromise reached by the EU, however, stipulates that the EU will initially borrow money through its budget and provide it to Ukraine as interest-free loans, while the frozen assets will serve as indirect collateral for the time being and will only be actively used if Russia fails to pay reparations. Merz attempted to frame this as a victory by saying that the order of financing had been reversed, but that Russia would ultimately still be obligated to pay. This reinterpretation is argumentatively dubious: the psychological effect on Putin is indeed smaller if the assets are initially only potentially, not immediately, available.

Nevertheless, Merz is not wrong when he points out that the structure effectively means that Russia will ultimately be responsible for the financing if reparations actually become due. The problem lies in the time lag and the uncertainty. A rational actor like the Russian central bank knows that there are many scenarios in which Russia will later reclaim these assets, for example, after a peace agreement or a change of government.

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“Unpaid War”: Who is really paying for Ukraine – Russia, the EU, or ultimately the taxpayer?

Belgian skepticism and the Euroclear issue: Where legal risks arise

The central role of Belgium, and in particular of Euroclear, in this scenario reveals a fundamental governance problem in the modern financial world. The reason Belgium resisted direct confiscation is that most of the frozen assets are held by the Belgian financial services provider. This was one reason why Chancellor Merz negotiated with the Belgian Prime Minister before the summit to address Belgium's concerns.

The core of Belgium's concern is this: if Euroclear directly seizes the frozen assets or uses them for financing, and Russia then successfully challenges this decision in an international court, Euroclear will be liable. Euroclear acts merely as a custodian, not as the owner. If the financial services provider is ordered by the courts to pay damages, or if the claim is successful, this could lead to the company's bankruptcy – with serious consequences for European financial markets. Euroclear's CEO is aware of this nightmare scenario and has publicly argued that the assets would be better used as leverage in peace negotiations rather than creating a complex and legally fragile construct.

The current arrangement – in which the EU centrally borrows money and this is then indirectly secured by frozen assets – is less direct from a legal standpoint, but it doesn't truly eliminate the risks. If Russia were to successfully sue one day, the EU would then have to answer the question of how to secure its own debt.

The European Central Bank and the warning about financial stability

The European Central Bank under Christine Lagarde has explicitly warned of the consequences of such a scenario. Lagarde has argued that large-scale measures against frozen Russian assets could jeopardize the financial stability of the eurozone. Her argument is that international central banks and institutional investors could lose confidence in the EU as a safe haven for foreign exchange reserves if these assets are touched without a clear basis in international law.

This is not a trivial argument. The euro's position as an international reserve currency rests to a significant extent on the trust that the EU maintains a stable and rule-of-law-based framework for property rights. If this trust is undermined by an action of the EU itself, other countries, particularly China and other emerging powers, could withdraw their reserves from the EU and instead turn to alternative currencies or asset classes. This would increase the cost of EU borrowing in the long term and diminish the creditworthiness of EU countries.

The ECB therefore takes a nuanced position: it accepts that interest income from frozen Russian assets can flow to Ukraine – this is a compromise middle ground that formally does not infringe on any property rights, but nevertheless mobilizes funds. The ECB, however, rejects the operational use of the bulk of the assets or considers it to be associated with serious risks.

The geopolitical context: Trump and European autonomy

One element that is often overlooked in the public German debate is the role of the Trump administration. The news magazine Politico reported that representatives of the Trump administration encouraged European governments to vote against the direct use of frozen Russian assets. This occurred behind the scenes and targeted countries known for their friendly ties to the US.

The reason for this resistance lies in the fact that the Trump administration has a different plan for the frozen assets: Wall Street managers and private equity investors would manage these funds and invest them in US companies and projects. This would not only generate business for US financial institutions but also place long-term economic control over Ukraine's reconstruction in American hands. A leaked plan envisions that, under American management, the asset fund could grow to as much as $800 billion through leverage and reinvestment.

This illustrates a fundamental geopolitical conflict: The EU is trying to preserve its own strategic autonomy and stabilize Ukraine as part of its geopolitical sphere. The US under Trump, on the other hand, is trying to secure private gains and strategic control. The European compromise of financing Ukraine through European debt is therefore also an attempt to resist this American-centric takeover.

The scenario of unpaid war: Who bears the costs?

The central risk scenario is this: The war ends without a peace agreement or with an agreement in which Russia makes no reparations payments. In this case, either the frozen assets would have to be used to repay the loan, or the EU member states would have to pay off these debts from their regular budgets. The first scenario is politically and legally questionable; the second would mean that European taxpayers would effectively be footing the bill for the Ukrainian war.

The current arrangement is a gamble on several uncertain factors: First, that Russia will be willing to pay reparations after the war. Second, that the frozen assets will not be fully remobilized through Russian legal action. Third, that Ukraine itself will be able to repay the loan if all else fails. All three assumptions are completely open at this point.

The political economy of the arrangement thus consists in the fact that the costs of the Ukraine war are fragmented temporally and institutionally: Currently, the EU pays through borrowing, in the future Russia is supposed to pay through frozen assets, and hypothetically Ukraine itself could pay if the war economy is later normalized.

The loan term and the question of long-term stabilization

The loan covers two years. This corresponds to Ukraine's military and budgetary needs until 2027. The question of what happens after that remains completely open. Will the EU provide hundreds of billions more in 2027? Will the war still be ongoing, or will peace negotiations have already led to a reassessment?

The two-year time limit can be interpreted as a deliberate strategic decision: it expresses the EU's willingness to provide substantial resources to Ukraine in the short to medium term, but its unwillingness to assume full responsibility indefinitely. This timeframe also puts pressure on Ukraine to reach peace negotiations more quickly, as external funding is not guaranteed indefinitely.

The Merz Plan debacle and European fragmentation

The fact that Merz failed to implement his plan reveals deeper fault lines in European decision-making. Before the summit, the German Chancellor had positioned himself as an advocate of a tough stance against Russia, arguing that the EU should deploy maximum financial force against Moscow. This is not only economically motivated, but also geopolitically: Germany is geographically situated on the border between NATO and Russia and therefore has a strong interest in stabilizing Ukraine.

However, other EU countries – particularly Belgium, France, and Italy – could not agree on this position. Belgium feared liability risks from Euroclear, France and Italy were unwilling to commit their budgets as reserves for such a risk, and several Eastern European countries were influenced by the Trump administration. This resulted in a situation where Germany failed to build the coalition necessary to implement its plan.

Merz's defeat is symptomatic of a larger European problem: the EU is fragmented along economic lines, geographical positions, and, more recently, along the axis of its relationship with the US. A united Europe with a clear strategy against Russia has yet to emerge.

Interest burden and future fiscal burdens

A hidden but critical problem with the current arrangement is the issue of interest payments. The ninety billion euros are structured as an interest-free loan, meaning Ukraine pays no interest to the EU. However, the EU itself must raise these ninety billion euros on the capital market and will have to pay interest on them. The EU currently has excellent borrowing conditions, but still pays interest rates in the range of two to three percent per year. This means that the EU will pay between two and two point seven billion euros in interest per year – and this must be covered by the EU budget.

Merz mentioned in his statements that this interest burden is not a problem because borrowing at the EU level does not directly burden national budgets. This is factually correct, but economically it is still significant that this interest has to come from somewhere. It means that the EU budget is reduced for other expenditures or that other countries have to make higher contributions.

The current dynamic is therefore as follows: Germany has concerns about its already strained fiscal situation but accepts that EU debt does not violate its national debt brake. Other EU countries also bear the interest burden but benefit less directly from a stable Ukraine. This creates tensions in the longer term as the interest burden of the arrangement becomes more apparent.

Strategic conclusion: A makeshift solution instead of a strategy

The ninety-billion-euro package is not the expression of a well-thought-out European strategy for stabilizing Ukraine, but rather a stopgap measure that arose from the clash of several conflicting European policies. Merz would have preferred to use frozen Russian assets directly, but was unable to prevail. Nevertheless, the EU needed a response to the manifest Ukrainian financial crisis. The result was a compromise that gives something to all the players, but not what any of them truly wanted.

For Ukraine, this means: Financing is secured until 2027; what happens after that remains uncertain. For the EU, this means: It has incurred debt without any clarity on whether and how this debt will be repaid later. For Russia, this means: A signal that the EU is prepared to commit resources to Ukraine long-term, but also a scenario in which Russia might later reclaim assets.

The current solution is therefore defensive and insecure. It demonstrates European weakness, not strength. The money will help Ukraine continue fighting, but it does not solve the fundamental questions that arise: How will this war end? Who will pay for the reconstruction? And how can Europe maintain its geopolitical autonomy vis-à-vis both the US and Russia?

These questions remain unanswered.

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