The European Central Bank has refused to backstop a €140 billion payment to Ukraine, dealing a blow to an European Union (EU) plan to raise a “reparations loan” backed by frozen Russian assets.
The ECB concluded that the European Commission proposal violated its mandate, according to multiple officials, adding to Brussels’ difficulties in raising the giant loan against Russian central bank assets immobilised at Euroclear, the Belgian securities depository.
It comes amid pressure on the EU to finance Ukraine for the next two years, as Kyiv faces a cash crunch amid a renewed Russian military onslaught and a US peace initiative.
Under the European Commission plan, EU countries would provide state guarantees to ensure the repayment risk on the €140 billion loan to Ukraine is shared.
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But commission officials said the countries would not be able to raise the cash rapidly in an emergency, and this could put markets under pressure.
The officials asked the ECB whether it could act as a lender of last resort to Euroclear Bank, the lending arm of the Belgian institution, to avoid a liquidity crisis, according to four people briefed on the discussions.
ECB officials told the commission this was impossible, three of these people said.
The ECB’s internal analysis concluded that the commission proposal was equivalent to providing direct funding to governments, as the central bank would cover the financial obligations of member states.
This practice, called “monetary financing” by economists, is banned in EU treaties because of evidence it results in high inflation and loss of central bank credibility.
The ECB said “such a proposal is not under consideration as it would likely violate EU treaty law prohibiting monetary financing”.
In response to the ECB’s stance, the commission has begun working on alternative proposals that would provide temporary liquidity to backstop the €140 billion loan, according to two officials briefed on the matter.
A commission spokesperson said it had been “in close contact with the ECB” since late October, and the central bank had “participated actively in all the discussions” regarding the loan proposal.
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“Ensuring the necessary liquidity for possible obligations to return the assets to the Russian central bank is an important part of a possible reparations loan,” they added.
“This is a must to ensure that the EU, its member states and private bodies can always fulfil its international obligations. Reflections on how to ensure this liquidity in detail are ongoing.”
Euroclear declined to comment.
The EU has frozen Russian assets worth about €210 billion since Russia’s full-scale invasion of Ukraine in 2022.
Belgium has opposed the loan to Kyiv on the grounds that in the event the Russian assets were unfrozen and Moscow was able to reclaim them, Euroclear would not be able to repay the money immediately.
Belgium’s prime minister Bart De Wever has said the EU plan is “fundamentally wrong”, and demanded the bloc’s other 26 member states sign up to “legally binding, unconditional, irrevocable, on-demand, joint and several guarantees” to share the risk of repaying the loan.
He wants such a commitment before EU leaders gather on December 18 for a summit that is meant to decide how the bloc should continue funding Kyiv.
Mr De Wever argues the member state guarantees and some form of backstop are required in case the EU sanctions that keep the Russian assets immobilised are suddenly annulled.
The sanctions have to be rolled over every six months through a unanimous decision. Some countries, including Hungary, have argued against renewal.
The US push for a peace deal between Russia and Ukraine, and alternative proposals from the Trump administration for use of Moscow’s immobilised assets, have raised concerns across the EU.
Belgium is particularly worried a potential peace agreement struck between Washington and Moscow could negate the EU sanctions and force Euroclear to repay Russia immediately.
Under the commission’s proposal, Ukraine would only have to repay the money if Russia agreed to pay reparations to Kyiv. – Copyright The Financial Times Limited 2025
