EU’s €90 billion Russia bet

On 25 June, the European Commission paid Ukraine the first €3.2 billion tranche of a €90 billion support loan (European Commission/EEAS). This was not Russian money simply transferred from frozen accounts to Kyiv. The EU borrowed the money on bond markets. Russia's frozen reserves help service the arrangement, but the financial risk now sits with EU member states, Malta included, while the question of who pays if Moscow never compensates Ukraine remains open.

How the Loan Actually Works

The EU raises money by selling bonds to investors and then lends the proceeds to Ukraine. The terms are unusual. Ukraine repays the principal only if Russia eventually pays war reparations or another form of compensation. Lawyers call this "limited recourse". In ordinary language, if Russia never pays, the lender takes the loss (White & Case).

A more direct plan to send Russian reserves to Ukraine collapsed under legal objections and political resistance inside the EU (Euronews). The compromise has three steps. First, Russia's central-bank reserves, around €210 billion held mostly as cash and securities in European financial institutions, remain frozen. Russia cannot move or use them, but it still legally owns them.

Second, the EU collects the interest and investment returns generated by those reserves while they remain frozen. EU regulations require that income to be separated and channelled towards support for Ukraine (European Commission/EEAS, Ashurst). Third, that income helps 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 gone to Ukraine (European Commission/EEAS).

The income does not cover the whole bill. EU member states pay an estimated €3 billion a year in borrowing costs on the joint debt (Euronews). That matters for small states as much as large ones: joint EU borrowing eventually becomes a budget question in every capital. The income stream also weakens when interest rates fall. The ECB, the European Central Bank that sets rates for the eurozone, has been cutting rates, which probably means the frozen reserves will generate less income over time, though the speed of that effect is unclear.

Belgium Sits on the Fault Line

Most of the frozen Russian reserves are held inside Euroclear, the Belgium-based company that settles cross-border financial transactions. When bonds or shares move between countries, Euroclear acts as the middleman. That concentration leaves Belgium with unusual exposure.

Belgian Prime Minister Bart De Wever has warned that confiscating the reserves outright, meaning seizing the principal rather than only using the income, would amount to expropriation without modern precedent and could damage confidence in Euroclear and in the euro's international standing (Ground News). Belgium wants all member states to share the legal risk before any further move.

That risk is no longer theoretical. Russia's central bank has challenged the indefinite freeze before the EU General Court in Luxembourg, arguing that it breaches property rights and sovereign immunity (Ashurst). If the court narrows the EU's legal basis for the freeze, the distinction between using the income and touching the principal could become harder to maintain. Belgium would feel the first impact.

Who Gains, Who Carries the Bill

Ukraine gains immediately. Prime Minister Svyrydenko confirmed that the €3.2 billion is already in the state budget, paying 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 risk if the mechanism fails. Repayment depends on Russian reparations that may never come. The income from frozen assets depends on interest rates that are moving down. The legal basis depends on a court ruling still to be delivered. Europe has built a route towards future Russian compensation, but it may also have created a loan that European budgets quietly end up carrying themselves.