The European Union is considering excluding financial guarantees provided by member states for a planned Ukraine reparations loan from national deficit and debt calculations, according to European Economy Commissioner Valdis Dombrovskis.

The proposal is part of a broader strategy floated by the European Commission to use frozen Russian assets as collateral for a €140 billion ($162 billion) loan to Ukraine. Under the plan, the loan would be repaid only once Ukraine receives reparations from Russia for war-related destruction.

During discussions among EU finance ministers on Friday, Italy’s Giancarlo Giorgetti and other officials raised concerns over the potential impact of the EU loan guarantees on national budget assessments.

Dombrovskis noted that, since the EU would retain Russian assets until reparations were made, the guarantees would likely not need to be called. However, Eurostat, the EU’s statistics agency, must still determine whether these guarantees would count towards national debt or deficit targets once the final mechanism is in place.

Read more: Macron: Seizing frozen Russian assets would break international law

Frozen Russian assets at the core of reparations plan

The EU has proposed using revenues generated from frozen Russian sovereign assets, the majority of which are held in European financial institutions. The Russian central bank has acknowledged that between $300 and $350 billion of its assets remain frozen in the West.

Much of the immobilized capital has matured and now exists in cash form, primarily held by the Belgian securities settlement firm Euroclear. Belgium has insisted that other EU members share the financial risk involved in extending the loan to Ukraine.

Dombrovskis also stated that the Commission is reviewing ways to prevent sanctions renewal against Russia from being blocked by a single EU member, as current decisions require unanimity.

G7, E3 powers align on Ukraine funding strategy

Simultaneously, the leaders of Britain, France, and Germany, collectively known as the E3, declared on Friday their intention to move forward with coordinated efforts to utilize the value of immobilized Russian assets to support Ukraine funding, specifically for military aid.

In a joint statement, British Prime Minister Keir Starmer, French President Emmanuel Macron, and German Chancellor Friedrich Merz said, “We are ready to progress towards using, in a coordinated way, the value of the immobilized Russian sovereign assets to support Ukraine’s armed forces and thus bring Russia to the negotiation table.”

They added that the initiative would be carried out “in close cooperation with the United States.”

The plan aligns with upcoming discussions among G7 Ukraine support officials, who will meet at the IMF and World Bank annual meetings in Washington next week. Dombrovskis noted that Ukraine is projected to face a financing gap of $60 billion for 2026 and 2027, excluding military aid.

While the EU is not seeking G7 members to guarantee the EU’s proposed loan, Dombrovskis said Brussels encourages allied nations to adopt similar asset-based funding mechanisms. Both Britain and Canada have reportedly expressed interest in following the EU’s lead.

In the same statement, the E3 welcomed the Gaza ceasefire agreement and pledged to resume humanitarian aid efforts as the truce takes effect.

Read more: G7 leaders allocate $50bln to Ukraine from frozen Russian assets