The European Union is facing a significant impasse over a contentious plan to utilize frozen Russian state assets, estimated at up to €140 billion, to provide a "reparations loan" for Ukraine. This proposal, championed by European Commission President Ursula von der Leyen and German Chancellor Friedrich Merz, aims to fund Ukraine's financial and military needs, which are estimated at €135 billion for the next two years, with the EU contributing at least €90 billion. Under this untested scheme, the Commission would channel the immobilized assets of the Russian Central Bank into a zero-interest line of credit for Ukraine, with repayment only required if Moscow agrees to compensate for war damages.

However, Belgium has emerged as the most vocal critic, vehemently opposing the plan due to profound legal and financial concerns. Belgian Prime Minister Bart De Wever and Foreign Minister Maxime Prévot have warned that the plan is "fundamentally wrong" and could lead to "disastrous" consequences, including national bankruptcy. The core of Belgium's apprehension stems from the fact that the majority of these frozen assets, approximately €185 billion, are held at Euroclear, a Brussels-based central securities depository. Belgium fears it would bear the brunt of any Russian legal action, which Russia's top banker Andrei Kostin has threatened could amount to 50 years of litigation and lead to demands for repayment exceeding €200 billion—an amount equivalent to an entire year of Belgium's federal budget.

Professor Veerle Colaert of KU Leuven University supports Belgium's concerns, explaining that Euroclear has a contractual obligation to repay the Russian central bank upon demand. If sanctions are lifted and the funds have been lent to the EU, Belgium would be compelled to step in, a financial burden it cannot afford. Moreover, tapping foreign reserves in Europe for other uses could severely dent confidence in Europe's financial system. Belgium has also raised concerns about the unanimity required to renew sanctions, fearing a single country's veto could prematurely lift restrictions and collapse the loan.

In response to Belgium's unwavering resistance, Ursula von der Leyen has outlined sweeping guarantees, presented in legal texts, to unblock the reparations loan. These safeguards include bilateral contributions from member states, a backstop from the EU budget, legal protections against retaliation, and a new prohibition on transferring sovereign assets back to Russia. However, Maxime Prévot has stated that these proposals "do not address our concerns in a satisfactory manner" and that Belgium would require guarantees "beyond" Euroclear and Belgium, easily exceeding €185 billion of the assets, emphasizing the need for solidarity in return for showing solidarity.

Belgium has proposed an alternative: the EU borrowing the necessary amounts on the markets, similar to its approach during the COVID-19 pandemic. This option, which would leave Russian assets untouched and avoid legal pitfalls, is advocated by Belgium and also by Professor Colaert, who noted that while an interest-free loan from frozen funds might seem appealing, it is not risk-free. However, this joint borrowing idea is opposed by the vast majority of member states due to its immediate impact on national treasuries. German Chancellor Merz, Estonian Prime Minister Kaja Kallas, and Ursula von der Leyen have all stressed the urgency of providing support to Ukraine, with Kallas arguing that a reparations loan would strengthen Europe's position against Moscow and incentivize peace talks.

The broader geopolitical context also plays a role, with the fate of these assets intertwined with US-Russian peace talks. President Volodymyr Zelenskyy has underscored the importance of fairness and transparency, stating that "What matters is that everything is fair and transparent. That there are no games played behind Ukraine's back." Bart De Wever also warned that proceeding with the loan could "effectively prevent reaching an eventual peace deal" if Russia is not declared the "losing party," potentially leaving European taxpayers to cover the loans. Ambassadors are set to discuss the legal texts, aiming for a deal at a crucial EU summit in mid-December, a decision made more pressing by the IMF's requirement for firm commitments from European allies for its $8.1 billion program for Ukraine.