Belgium refuses to support the compensation loan unless the legal and financial risks are shared and other EU member states make use of Russian assets held in their own jurisdictions. Euroclear has expressed similar reservations about the plan and is threatening to sue the European institutions \u2013 as it is at serious legal risk of having to repay Russia \u201cin full\u201d for the funds. Dombrovskis said that securing Belgian consent was not a \u201cprerequisite\u201d for publishing a detailed legal proposal on how it would work in practice \u2013 but that Belgium\u2019s agreement would be \u201cideal\u201d.<\/p>\n\n\n\n
While there has been \u201ctechnical progress\u201d in talks between EU and Belgian officials, he admitted that there has been little political progress.<\/p>\n\n\n\n
Transitional solution<\/strong><\/p>\n\n\n\n The experienced commissioner also warned that a separate \u201ctransitional\u201d EU solution to cover Ukraine\u2019s budget gap for the time being \u201cmay be necessary\u201d if negotiations with Belgium do not \u201cadvance quickly\u201d by the end of the year. Such schemes, outlined in an \u201coptions text\u201d circulated to member states last week, would envisage the use of joint EU debt and bilateral grants from member states as alternative ways of temporarily covering Kiev\u2019s budget gap.<\/p>\n\n\n\n The document estimates that Ukraine will need military and economic support of \u20ac72 billion in 2026 and a further \u20ac64 billion in 2027. Ursula von der Leyen suggested earlier this week that these alternatives would not be feasible if financed entirely by European taxpayers\u2019 money. Dombrovskis, a former prime minister of Latvia, stressed that the EU needs to \u201cmove forward, because Ukraine\u2019s financial needs are not only significant, they are urgent.\u201d<\/p>\n\n\n <\/p>\n\n\n\n A \u201cblack hole\u201d for the European economy<\/strong><\/p>\n\n\n\n At the same time, a peace plan for Ukraine that would leave the country crippled by the territories already occupied by Russia would have a heavy economic cost for Europe. All of the ceasefire proposals put forward in the past two weeks, whether by the US government or by Europeans, involve Kiev accepting that Russia retains, at least temporarily, control over all or part of two regions it has annexed \u2013 Donbass and Luhansk.<\/p>\n\n\n\n This would create a hotbed of uncertainty that would weigh on the European economy for years.<\/p>\n\n\n\n First, peace would highlight the fact that President Vladimir Putin, as the victor of the war, will never accept that his country\u2019s \u201cfrozen\u201d reserves \u2013 some $300 billion in the US, Japan, the UK and Europe \u2013 can be used to rebuild Ukraine, as EU governments demand.<\/p>\n\n\n\n A proposal being discussed within the EU and supported by German Chancellor Friedrich Merz would see at least the assets held by the Union\u2019s central bank \u2013 some $210 billion \u2013 used as collateral for a \u201cwar reparations loan\u201d to Ukraine.<\/p>\n\n\n\n But EU leaders need to act much more quickly for this solution to be effective, something that is not in sight, given the differences in views and the asymmetric risk-sharing. Nearly a year ago, the World Bank estimated that the country\u2019s reconstruction would cost $524 billion over the next decade.<\/p>\n\n\n\n A year later, the bill is now approaching $600 billion. Instead of Russia shouldering half the cost by releasing its frozen reserves, Ukraine\u2019s allies may have to shoulder almost all of the burden.<\/p>\n\n\n\n According to the World Bank, Ukraine\u2019s reconstruction will need to be financed by a mix of foreign governments, international organizations, and private investors. But unless the territorial status is settled, Ukraine will not be able to rely on the flow of private foreign capital that would help its economy recover.<\/p>\n\n\n\n Even if both sides accept a shaky status quo, the fear of renewed fighting \u2013 and a new Russian invasion \u2013 will deter investors for years. Ukraine\u2019s economy has proven resilient since the war began in 2022. But its GDP this year will remain 20% below 2021 levels, according to an International Monetary Fund estimate.<\/p>\n\n\n\n Both Donbass and Luhansk accounted for about 15% of the country\u2019s output at the time, according to the World Bank. So rebuilding will take time. Some of the more than 5 million Ukrainian refugees who have found refuge in the rest of Europe \u2013 about 75% of whom are women and children \u2013 may choose to return home, even as the ceasefire with Russia looks fragile.<\/p>\n\n\n\n This could help boost the country\u2019s growth prospects by boosting its workforce. Germany has taken in 1.3 million refugees since the start of the conflict, and Poland more than 1 million, according to the UN Refugee Agency.<\/p>\n\n\n\n The EU will still need to help Kiev train returnees and fund their social support as they adjust to the country\u2019s reconstruction needs. And the estimated 200,000 soldiers who will return to civilian life \u2013 if the size of the Ukrainian armed forces is set at 800,000, according to an EU proposal \u2013 will need similar support.<\/p>\n\n\n\n Ukraine’s accession to the European Union will also be hindered by the violation of its territorial integrity, if the international status of the two regions, which is under “suspension”, is not definitively settled.<\/p>\n\n\n\n Border control within the framework of national sovereignty is seen by the EU as a guarantee that its laws and regulations will be enforced by national governments. If the shaky ceasefire now under consideration is declared in eastern Ukraine, Western Europeans will, if anything, have to increase their defense spending even faster than they plan.<\/p>\n\n\n\n Other countries close to Russia will need to bolster their defenses \u2013 and so will the rest of Europe. Investors who sent European defense stocks as much as 5% lower after the announcement of Trump\u2019s first peace plan \u2013 with shares such as Germany\u2019s Rheinmetall falling as much as 13% \u2013 seem to fail to realize that Ukraine is not the only destination for European weapons.<\/p>\n\n\n\n The growing defense budgets in the region are to be spent on preparing for a possible future war with Russia.<\/p>\n\n\n\n![\"\"](\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2025\/11\/image-163.png\")
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