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NextFin News - Germany has issued an ultimatum to its European Union partners: replace the €100 billion earmarked for Ukraine in the bloc's next long-term budget with a new loan backed by frozen Russian central bank assets, or face a budget battle that could delay support for Kyiv. The demand, advanced by Berlin and backed by Sweden, Poland, the Netherlands and Spain, forces a choice that goes to the heart of how Europe pays for a war now entering its fifth year — whether to tap the €210 billion in immobilised Russian money sitting in European accounts, or to keep drawing on national contributions and EU borrowing.
The stakes are immediate. Ukraine needs an estimated €136 billion in budget support over 2026 and 2027, of which €52 billion in 2026 and €33 billion in 2027 is for military purposes. The €90 billion loan agreed by EU leaders in December — of which €19.8 billion had been disbursed by early November, split between €15.8 billion for defence procurement, €3.2 billion in macro-financial assistance and €800 million through the Ukraine Facility — covers the essential military needs but leaves a gap. Germany's move is a bid to close that gap without enlarging the EU's 2028-2034 budget, and it is a test of whether the bloc can keep financing Ukraine after US support receded following Donald Trump's return to the White House in January 2025.
The Ultimatum: Budget Money or Russian Assets
Under the German proposal, a new loan to Kyiv would be secured against the frozen Russian assets, replacing at least part of the €100 billion the European Commission had planned to mobilise for Ukraine over the 2028-2034 period. Four EU diplomats and officials said the move aligns with Berlin's aim of cutting the size of the next multiannual financial framework, which the Commission proposed on 16 July 2025 at almost €2 trillion, or 1.26% of the EU's gross national income.
The arithmetic is deliberate. The assets — €210 billion of Russian central bank reserves immobilised after the February 2022 invasion, of which €185 billion sits with the Belgian clearing house Euroclear — generate interest that Moscow cannot access. Under the legal arrangement, Russia retains ownership of the capital but forfeits the windfall profits. The EU has already harvested €8 billion of those profits, including a €1.4 billion tranche received on 3 August 2026, the fifth such transfer and covering interest earned in the first half of the year. In 2024 alone, the immobilised pool yielded around €4 billion in windfall profits.
Germany's pitch reframes the question for objectors. As one diplomat put it, the choice is "whether you want to finance Ukraine support via the [budget], meaning there may be less money for farmers and regions, or whether you free up many billions by using the Russian assets instead." That framing is designed to put the burden on Belgium, which hosts Euroclear and has long warned that using the assets as collateral exposes it to Russian legal retaliation.
But the framing is also a pressure tactic. The multiannual financial framework requires unanimous approval by all 27 member states plus sign-off by the European Parliament. Berlin does not need a blocking minority coalition to stall it — a single German veto is enough. By tying its assent to the budget to an asset-backed loan, Germany converts a budget negotiation into a referendum on the frozen assets themselves.
The Legal and Political Fault Line
Belgium's resistance is not abstract. Russia's central bank has already launched a lawsuit against Euroclear to block any loan backed by frozen funds, and the European Central Bank refused to support a €140 billion asset-backed loan proposal on financial-stability grounds. The concern is that if Russia successfully challenges the scheme, the losses could fall on Euroclear and, by extension, its Belgian supervisors — while the benefits accrue to all 27 member states.
That asymmetry has repeatedly stalled asset-backed financing. A plan to use the assets as collateral for a reparations loan was shelved after Belgian objections; the €90 billion loan that ultimately passed was instead backed by EU budget headroom, with opt-outs secured for Hungary, Slovakia and Czechia. German Chancellor Friedrich Merz has argued the assets should remain blocked until Moscow pays reparations, which Ukrainian President Volodymyr Zelenskyy estimates at more than €600 billion.
"If Russia does not pay reparations we will — in full accordance with international law — make use of Russian immobilized assets for paying back the loan," Merz said.
The legal architecture matters because it determines who bears the risk. In the windfall-profit scheme already in operation, only the interest is spent and the principal remains intact — a design that sidesteps confiscation claims. A loan secured against the principal itself crosses that line, converting immobilised reserves into collateral and inviting the very property-rights challenges that Germany and others once wanted to avoid.
The geography of the assets compounds the problem. Of the €210 billion frozen in Europe, roughly €25 billion sits outside Euroclear, mostly in French banks — around €18 billion of it. Unlike the Euroclear cash, those assets still generate interest that legally belongs to Russia, so pooling them into a collateral vehicle would require stripping Moscow of income it is still owed. Belgium has insisted the non-Euroclear assets be included so the burden is shared; France has little incentive to volunteer its banks as co-collateral.
Why Germany Is Pushing Now
The timing is driven by three converging pressures. First, the existing Ukraine Facility — up to €50 billion for 2024 to 2027 — has already delivered more than €31.4 billion of direct assistance as of October 2026, and its remaining headroom must stretch into 2027. Second, Washington's posture has shifted: the Trump administration's 28-point peace plan and its new national security strategy have read to European capitals as more America-first and less committed to confronting Russia, leaving Brussels as Kyiv's principal financier. Third, and most important, Berlin sees the assets as leverage over Moscow itself.
"We need a new impetus to change Russia's calculations," Merz wrote in an editorial. "Now is the moment to apply an effective lever that will disrupt the Russian president's cynical game of buying time and bring him to the negotiating table." The argument is that a loan backed by Russian money, repayable only from Russian assets, removes Moscow's option of waiting out Western fatigue.
Merz has also rejected placing any of the assets under US supervision, insisting they remain under European control. "These assets are frozen in Europe and they should remain frozen in Europe," he said. "That is our affair and we will decide on it." The statement underscores a broader European push for strategic autonomy in financing the war — and a wariness of depending on Washington's whims. Polish Prime Minister Donald Tusk framed the urgency more bluntly: the choice is "either money today or blood tomorrow."
The Second-Order Problem: Who Really Pays
The conventional reading of the German proposal is straightforward: use Russian money so European taxpayers do not have to. But that framing misses the second-order transmission. The frozen assets are not a free resource; they are a balance-sheet item whose risk must sit somewhere. If the assets are pledged as collateral and Russia successfully litigates or retaliates against Euroclear, the loss lands on the Belgian financial system and potentially on the EU budget that backstops the loan — which means the cost ultimately circulates back to national treasuries anyway, including Germany's.
Nor is the windfall stream reliable enough to underwrite a structural funding commitment on its own. The €8 billion in profits harvested since immobilisation began in early 2022 averages well under €2 billion a year — a fraction of Ukraine's €136 billion two-year need. Even the more aggressive proposal to unlock up to €140 billion of the principal would not cover the full gap, and it would consume the collateral that makes the windfall scheme sustainable in the first place. Europe is being asked to choose between a small, safe income stream and a large, legally contested one-time conversion — with the latter potentially destroying the former.
There is also a concentration risk that central bankers have flagged. Euroclear's conversion of Russian assets into cash has already altered the composition of the immobilised pool: about €176 billion now sits in cash, with only €9 billion in securities maturing in 2026 and 2027. Pledging that cash as collateral for EU borrowing would tie the bloc's credit to the legal fate of a single clearing house's custody arrangements. A successful Russian challenge would not just freeze a funding line; it would impair the balance sheet of the institution that clears a large share of Europe's fixed-income market.
The debt-sustainability angle cuts the same way. The European Commission's own guidance says any new package must not create an additional fiscal burden for Kyiv. A loan repayable only from Russian reparations satisfies that test on paper — but if reparations never materialise, the obligation still appears on the EU's books, and the political pressure to socialise it grows with every year of war. The €45 billion G7 Extraordinary Revenue Acceleration loan, of which €25.3 billion has been disbursed, was built on the same premise; servicing it depends on future windfall flows that are themselves a function of interest rates and the size of the immobilised pool.
The Counter-Thesis: Budget Funding Is the Safer Path
The strongest case against Germany's ultimatum is not Belgian legal caution but fiscal predictability. Budget-backed borrowing, as in the €90 billion loan, carries the full faith of the EU and can be priced and disbursed on a known schedule. Asset-backed financing carries litigation risk, Russian retaliation risk, and political risk — including the possibility that Hungary, which has repeatedly threatened to block sanctions renewals, could use the assets as a bargaining chip to force their release. Viktor Orbán has already positioned himself as the veto player on Russia policy; handing him leverage over the collateral would be to invite exactly that trade.
Proponents of the budget route also note that the €100 billion Ukraine envelope in the 2028-2034 proposal sits outside the budget ceiling, meaning it does not directly compete with farm and regional spending the way Germany's framing suggests. Cutting the envelope to unlock assets would therefore save less than Berlin implies, while adding legal uncertainty to a funding stream Kyiv cannot afford to have interrupted.
This counter-thesis has real force — but it depends on one assumption: that EU governments are willing to keep enlarging budget commitments as US support fades. That is the variable worth watching. If Berlin and other net contributors balk at topping up the multiannual framework beyond current proposals, the asset-backed route stops being a preference and becomes the only arithmetic that closes the gap. Independent analysis has already floated raising a Ukraine Support Loan ceiling to between €135 billion and €150 billion through the same structure, implying another €45 billion to €60 billion of borrowing — a scale that no capital market issuance has yet tested for the bloc in wartime conditions.
The falsifying signal is specific: if the European Council agrees to increase the 2028-2034 Ukraine envelope above €100 billion or adds a new budget line for Kyiv without touching the frozen assets, Germany's ultimatum has failed and the budget route prevails. Conversely, if the final MFF keeps the envelope flat and member states endorse a collateralised loan, the asset route wins — and Belgium's legal exposure becomes Europe's collective problem.
What Comes Next
The battle will be fought over the multiannual financial framework. Germany's coalition of Sweden, Poland, the Netherlands and Spain gives it political weight in budget talks, but the decisive lever is Berlin's own veto. Without German assent, the next seven-year budget stalls — which is why the "ultimatum" language fits: Kyiv's funding for the latter half of the decade is being held hostage to a decision on Russian assets.
Short term, expect a compromise that blends both approaches — a smaller asset-backed facility layered on top of budget-backed borrowing, with enhanced legal protections for Belgium and possibly for French banks holding the non-Euroclear slice. Medium term, the pressure will grow as the €90 billion loan is disbursed and Ukraine's 2027 needs come into view; the Commission has signalled it is examining options, with further discussions expected through November and December. Long term, the structural question is whether Europe can fund a multi-year reconstruction and defence commitment without a reliable US partner; if the answer is no, the frozen assets will be tapped regardless of the legal risks, because the alternative is a funding cliff for a country at war.
Europe's choice is not really between Russian money and European money. It is between admitting that paying for Ukraine's defence is a European budget responsibility — or pretending it can be outsourced to a legal workaround. The frozen assets are not a slush fund; they are collateral for a continent's willingness to pay.
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