At the European Council meeting scheduled for Thursday 18 and Friday 19 December in Brussels, the leaders of the countries of the European Union will be asked to decide how to continue financing Ukraine for 2026 and 2027, to the tune of €90 billion, or two-thirds of the requirements identified by the IMF.
Failure is not an option. The President of the European Council, António Costa, whose credibility is at stake, has warned his counterparts that negotiations will last as long as is necessary to reach a decision, in line with the commitments made at the end of October (see EUROPE 13737/1). The situation is urgent: Ukraine could find itself in default at the start of the second quarter of 2026.
On the eve of the European Council, several diplomats involved in the negotiations pointed to the wider geopolitical stakes involved in the technical discussions on the type of loan to be granted to Ukraine. In their view, by continuing its financial support for Kyiv in its existential struggle against Russia, the EU will strengthen Ukraine’s position in the peace negotiations led by the Trump administration, give itself time to consider other forms of funding for Ukraine from the EU’s post-2027 budget, and respond to accusations of weakness from Washington and Moscow.
However, one decision did not seem to be a foregone conclusion early on Wednesday 17 December.
The two financing options put forward in early December by the European Commission (see EUROPE 13765/1) remain on the table: - a loan against the EU budget; - a ‘Reparations Loan’ based on the use of all the Russian Central Bank’s assets frozen in the EU, without confiscating them. The second option is preferred by a large majority of Member States.
For the past two weeks, national experts and diplomats have been busy working out how the ‘Reparations Loan’ will work, taking into account the major concerns of Belgium, by far the most exposed Member State, since it hosts the Euroclear central securities depository (CSD), where €185 billion of these assets are held.
Belgium advocates joint loan. Since the informal summit in Copenhagen in October (see EUROPE 13722/2), the Belgian government has rejected the ‘Reparations Loan’ option in favour of a joint loan. It’s “cheaper, quicker, more transparent and a known quantity”, said one expert.
Belgium’s approach was supported by Italy, Bulgaria and Malta. On Wednesday, before the Italian Parliament, the President of the Italian Council, Giorgia Meloni, who is on the same political side as her Belgian counterpart, Bart De Wever, expressed concern about the risk to Italian public finances posed by the ‘Reparations Loan’.
The legal experts at the Commission and the Council of the EU have stated that unanimity is required among the Member States in order to grant a loan against the EU budget. But Hungary’s refusal to expose itself further fiscally with relation to Ukraine makes consensus impossible. Slovakia and even the Czech Republic could also be on the ‘no’ side.
However, on the basis of the recent decision to prevent the transfer out of the EU of Russian public assets (see EUROPE 13771/7), the Belgian authorities are raising the possibility of using an emergency legislative procedure (Article 122 of the TFEU Treaty) to decide on the joint raising of debt by a qualified majority of Member States. ECB President Christine Lagarde reportedly suggested this at a dinner of European finance ministers last Thursday.
“It’s just wishful thinking”, said one European diplomat.
Responding to Belgian concerns about the ‘Reparations Loan’. Every effort is being made to provide a legal basis for the ‘Reparations Loan’, vigorously supported by German Chancellor Friedrich Merz, which would demonstrate that Russia is paying for the destruction caused in Ukraine.
This financial package, which requires a qualified majority of Member States in the EU Council to be implemented, would make it possible to overcome the opposition of Hungary, and even Slovakia and the Czech Republic. However, according to numerous sources, it seems unrealistic for the European Council to decide to go ahead without Mr De Wever’s approval, given Belgium’s disproportionate exposure to the risks inherent in this type of loan.
The Belgian government has set a number of conditions which if not fulfilled will rule out Belgium’s participation in the ‘Reparations Loan’. In particular, the participating Member States will have to provide “legally binding, unconditional, irrevocable, on-demand, joint and several” guarantees to ensure that the EU is always in a position to repay the funds in the event of a payment default by Ukraine or the non-renewal of European sanctions against the Bank of Russia.
The issue of national guarantees remains a key point in the negotiations. The Belgian authorities are asking for guarantees in excess of the amount corresponding to all the Russian public assets frozen in the EU, i.e. €210 billion. In their view, in the event of a dispute being fought and won by the Kremlin in Russia or in a country allied to Moscow, the claim by the Bank of Russia could exceed this threshold.
But the Member States do not want to commit to unlimited public guarantees. Since it is impossible to know the amounts, they are refusing to issue “a blank cheque”, confirmed a source, who considers that this is the issue on which negotiations could break down. On all other matters—eligibility, equal standing of banks and CSDs, financial stability, and so on “we have made significant progress”, added the source.
Belgium is also calling for burden-sharing within the EU and between G7 allies. This includes the inclusion in the financial package of all Russian public assets frozen in the EU, in particular the €25 billion held by other CSDs and commercial banks in Germany, Cyprus, France and Sweden.
It would appear that, despite the legal difficulties raised by Paris, particularly in relation to the interest generated by Russian assets tied up in private banks, a solution is in sight. As for the participation of third country allies in the G7, favourable signals are coming from the United Kingdom and Canada, which are considering drawing up a similar loan. On the other hand, the United States and Japan will not be going down this road.
Whichever option is chosen by Europe’s leaders, the questions also arise: - the use of the gigantic sums that will be paid to Ukraine to rebuild and continue the war effort; - the conditions in terms of structural reforms that will be imposed on the candidate country.
As with the European ‘SAFE’ and ‘EDIP’ instruments, negotiations have also focused on the share of macro-financial aid that will enable investments benefiting European companies, particularly in the defence sector. On this point, France is at the forefront in promoting a European preference that encourages greater integration of the European and Ukrainian defence industries.
Discussions expected on the peace negotiations. In addition to funding Ukraine for 2026-2027, EU leaders should look at the ongoing peace negotiations and the support the EU could provide for a peace agreement.
According to draft European Council conclusions dated 16 December, the leaders should welcome the diplomatic efforts underway, promising to contribute actively to them, and urge Russia to engage in constructive negotiations.
“For peace to be just and lasting, borders must not be changed by force, and any future agreement must respect Ukraine’s independence, sovereignty and territorial integrity, and guarantee its long-term security and ability to defend itself”, warn the leaders, who are calling for the return of civilians illegally deported or transferred, including children.
In Berlin on Monday, twelve European leaders committed themselves to security guarantees for Ukraine (see EUROPE 13774/27). The European Council is expected to confirm that the EU and its Member States are ready to contribute to “solid and credible” security guarantees that will enable Ukraine to deter any future military aggression. It will also stress the importance of stepping up efforts to meet Kyiv’s urgent military and defence needs. On Wednesday, Denmark, which holds the Presidency of the Council of the EU, set an example by announcing a further €228 million in support.
To increase the pressure on Russia, the European Council will invite the Council to continue its work on a new set of sanctions, to be adopted “at the beginning of 2026”. According to a European source, the aim is to adopt the 20th package of European sanctions on the ‘anniversary’ of the Russian military aggression, i.e. 24 February 2026.
Lastly, the EU’s “unwavering” support for Ukraine’s accession process will be reaffirmed, welcoming the significant progress made so far by the country in an extremely difficult context.
See the draft conclusions of the European Council: https://aeur.eu/f/k1d (Original version in French by Mathieu Bion, Camille-Cerise Gessant and the editorial staff)