European governments are nearing consensus on a plan to finance Ukraine's defense through a massive loan backed by frozen Russian central bank assets, a proposal that could be finalized by the end of the year.

The initiative, discussed during last week's G7 finance ministers' meeting in Washington and due to be debated at an EU summit in Brussels on Thursday, would provide Ukraine with €140 billion (£159 billion) in interest-free loans. These loans would be guaranteed by Russian assets frozen since the start of the war and held primarily by the Brussels-based financial institution Euroclear.

Polish foreign minister Radosław Sikorski expressed optimism that the long-debated issue is nearing resolution, telling The Guardian that he believes "the issue of the use, on behalf of the victim of aggression, of the frozen Russian assets is heading towards a happy resolution." He added, "It's very simple, either we use the aggressor's money or we will have to use our own money. Don't ask me which I prefer."

Under the European Commission's proposal, the assets themselves would remain untouched, while their value would be used to secure financing for Kiev. "What we are proposing is not confiscation," a senior EU official explained earlier this month, describing the plan as a legal way to assist Ukraine without violating property rights.

Europe funds Ukraine

Ukraine's government, facing a persistent budget shortfall due to the ongoing war, has depended heavily on external assistance from its allies. With costs escalating and US funding uncertain, European countries are under mounting pressure to take a more central role in sustaining Ukraine's economy and military. EU officials estimate that Ukraine will require an urgent financial boost by April 2026, with an additional $50 billion in outside funding needed that year alone.

Belgium, which hosts about €183 billion in Russian funds at Euroclear, has demanded firm guarantees that it will not bear the financial risk if the scheme falters or provokes lawsuits. Brussels is also pressing G7 partners to join the initiative to share responsibility.

UK Chancellor Rachel Reeves participated in discussions on the sidelines of the International Monetary Fund's annual meeting in Washington, as Britain prepares to contribute to the guarantees even though it holds only a small portion of frozen Russian assets. Negotiations continue over how much each G7 nation, including the United States, would pledge to back the loan.

US involvement uncertain

American involvement remains uncertain. The US possesses only about $7 billion in Russian central bank assets, but Washington's political and legal backing is viewed as essential for the plan's credibility. A UK government spokesperson told The Guardian, "The G7 agrees we must continue to pressure Putin to come to the negotiation table, as well as exploring a new way of financing Ukraine's war effort through utilising the value of Russian sovereign assets. We are continuing to develop the UK's approach, and are only considering options which are in line with international law and that are economically and financially responsible."

Until now, the EU and UK have limited themselves to redirecting profits earned from frozen Russian holdings, aiming to raise €45 billion. The decision to use the underlying capital marks a major policy shift, one driven by mounting frustration among Eastern European governments that had long urged such action. The balance within the bloc began to change when German Chancellor Friedrich Merz publicly endorsed the idea, writing in an opinion piece for the Financial Times that Europe needed "a new impetus to change Russia's calculations."

Putin visit to Hungary 'not nice': Kallas

Amid these discussions, tensions flared in Brussels over reports that Russian President Vladimir Putin may travel to EU-member Hungary for talks with US President Donald Trump. EU foreign policy chief Kaja Kallas called the idea "not nice", citing the International Criminal Court's arrest warrant for Putin and Hungary's ongoing process of withdrawing from the court.

Her remarks touched a sensitive nerve within the bloc, where several EU members had already faced criticism for wavering over compliance with the ICC's earlier arrest warrant for Israeli Prime Minister Benjamin Netanyahu.

"It's not nice to see that really a person put to the arrest warrant by the ICC is coming to a European country," Kallas said in reference to Putin, adding that while Trump's efforts to encourage peace talks are "good if Russia stops this war," any credible negotiation must involve Ukrainian President Volodymyr Zelensky directly.

Lithuanian foreign minister Kestutis Budrys was blunter, saying, "The only place for Putin in Europe is in The Hague, in front of the tribunal, not in any of our capitals." His remarks echoed wider concerns among EU diplomats that any US-Russia dialogue conducted without Kiev's participation could undermine European unity at a delicate moment in the war.

Kallas also said she expects the bloc's 19th package of sanctions against Russia to be approved this week, reinforcing the EU's dual-track strategy of financial support for Ukraine and continued pressure on Moscow. The sanctions are seen as crucial for sustaining the freeze that underpins the proposed loan mechanism.

Russia only understands strength.
It only negotiates when put under pressure.

That’s why we are working towards adopting our 19th package of sanctions this week.

My doorstep ahead of the Foreign Affairs Council ↓ pic.twitter.com/ljiS0fD4uX

— Kaja Kallas (@kajakallas) October 20, 2025

Sanctions solidarity

A draft statement for Thursday’s EU summit indicates leaders will call for a detailed proposal that complies with international law and ensures "appropriate European solidarity and risk-sharing." The plan’s success, however, depends on maintaining the sanctions that keep the assets frozen. The European Commission is exploring a mechanism to prevent pro-Russian states, particularly Hungary, from blocking future renewals of sanctions. This would shift decision-making from unanimous consent to a majority vote, a move that EU legal advisers at the Council of Ministers have described as legally questionable.

Moscow has already warned of consequences if the West proceeds. Russian Foreign Ministry spokesperson Maria Zakharova said Russia possesses a "wide arsenal" of economic and political countermeasures, including the possible confiscation of Western assets in Russia. She noted that the Kremlin holds substantial amounts of Western property and funds that "may all be subject to Russian retaliatory policy and retaliatory actions," though she declined to specify what measures might follow.

If successful, the measure would mark one of the boldest financial maneuvers yet in Europe’s support for Kiev, which comes as Europe grapples with a growing diplomatic split over how, and with whom, any future peace should be negotiated.