The European Commission has detailed how a proposed reparations loan for Ukraine would be financed using revenue generated from frozen Russian sovereign assets, stressing that the mechanism does not constitute confiscation and would remain fully compliant with international law, reported Ukraine Business News.

According to the Commission’s outline, around €210bn in cash has accumulated on the balance sheets of European financial institutions as a result of the EU’s prohibition on transactions with the Central Bank of Russia and the Russian National Welfare Fund. This liquidity emerged because the institutions are unable to return coupon payments and maturing proceeds to Moscow.

Of this amount, €95bn is earmarked for Ukraine’s macro-financial needs, including €45bn previously reserved under the G7’s Extraordinary Revenue Acceleration (ERA) initiative. A further €115bn would be directed toward strengthening Ukraine’s defence-industrial base. The loan facility would remain available until 31 December 2030, with the exception of ERA-linked budget support, which would extend until 2055.

The Commission said the scheme falls outside the scope of sovereign immunity because the funds are not the property of the Russian state but appear as liabilities on the balance sheets of EU-based financial intermediaries. Under the mechanism, institutions would exchange these trapped balances for EU-issued bonds, ensuring that the underlying assets “change form rather than being seized.”

To safeguard the operation, Brussels has proposed a three-layer guarantee structure to meet obligations if needed. All proceeds must be channelled exclusively into programmes supporting Ukraine as a “proportionate response to Russian aggression,” the Commission said.

The EU also outlined two funding options for 2026–27: issuing a reparations loan backed by the frozen Russian assets, or borrowing jointly on behalf of the bloc using EU financial guarantees — a model similar to pandemic-era recovery borrowing.

EU leaders aim to settle on a final approach at the European Council meeting on 18–19 December, as Kyiv faces acute financing pressures heading into 2026 and the United States signals a phased reduction in support.