EU risks €90 billion on Russian reparations

The EU did not take €3.2 billion from Russia's frozen accounts and send it to Kyiv. On 25 June, the European Commission disbursed that amount as the first instalment of a €90 billion loan to Ukraine (European Commission/EEAS). The money came from EU borrowing on bond markets. Frozen Russian reserves play a supporting role, but the arrangement shifts real financial risk onto EU member states — and nobody has settled the question of who absorbs the loss if Russia never compensates Ukraine.

How the Loan Actually Works

The EU raises money by selling bonds to investors, then lends the proceeds to Ukraine. The loan terms are unusual. Ukraine only repays the principal if Russia eventually pays war reparations or other compensation. Lawyers call this "limited recourse." In plain English: if Russia never pays, the lender eats the loss (White & Case).

An earlier, more direct plan to hand Russian reserves straight to Ukraine fell apart over legal objections and political resistance within the EU (Euronews). The compromise was a three-step workaround. First, freeze Russia's central-bank reserves, around €210 billion held mostly as cash and securities at European financial institutions. Russia cannot move or use them, but still legally owns them. Second, collect the interest and investment returns those reserves generate while sitting frozen. EU regulations require that this income be separated and directed toward Ukraine's support (European Commission/EEAS, Ashurst). Third, use that income to help cover the interest the EU pays on the bonds it issued for the loan. The Commission says €3.8 billion in such proceeds has already been provided to Ukraine (European Commission/EEAS).

But the income does not cover everything. EU member states pay an estimated €3 billion a year in borrowing costs on the joint debt (Euronews). And the income stream has a built-in weakness: it shrinks when interest rates fall. The ECB (the European Central Bank, which sets interest rates for the eurozone) has been cutting rates, which likely means the frozen reserves are generating less income over time, though the exact pass-through speed is unclear.

Belgium Sits on the Fault Line

Most of the frozen Russian reserves are held inside Euroclear, a Belgium-based company that settles cross-border financial transactions. When bonds or shares change hands between countries, Euroclear is the middleman. That concentration gives Belgium unique exposure.

Belgian Prime Minister Bart De Wever has warned that confiscating the reserves outright — seizing the principal, not just the income — would amount to expropriation without modern precedent, and could undermine confidence in Euroclear and the euro's international standing (Ground News). Belgium wants all member states to share the legal risk before any further steps.

That legal risk is already materialising. Russia's central bank has challenged the indefinite freeze at the EU General Court in Luxembourg, arguing it violates property rights and sovereign immunity (Ashurst). If the court narrows the EU's legal basis for the freeze, the clean separation between "using the income" and "touching the principal" could collapse, and Belgium would face the first consequences.

Who Gains, Who Carries the Bill

Ukraine is the immediate winner. Prime Minister Svyrydenko confirmed the €3.2 billion is already in the state budget, financing public wages and pensions (Ukrainska Pravda). Two more instalments are expected this year: €3.7 billion in September and €1.45 billion before December (PubAffairs).

EU taxpayers carry the bill if the mechanism breaks down. Repayment depends on Russian reparations that may never arrive. The income from frozen assets depends on interest rates that keep falling. And the legal basis depends on a court ruling that has not yet come. The unresolved question is whether Europe has built a bridge to eventual Russian reparations, or a loan that European budgets will quietly end up carrying themselves.