The ongoing discussions on a possible US sponsored peace deal to end the Ukraine war has put fresh pressure on the EU to come up with a solution to Ukraine’s acute funding shortfall.

As part of the US 28-point peace plan (28PPP), Russia’s $300bn of frozen assets may be used to seed several reconstruction and investment funds that would take the cash off the table for use to finance Kyiv in 2026.

In response, the European Commission (EC) is urgently working on an alternative plan to offer Ukraine a bridge loan in parallel to talks on the mooted €140bn Reparation Loans using Russian frozen cash.

It's an emergency plan B to secure more cash for Ukraine which could run out of money as soon as February after the Trump administration pulled out of support for the war in Ukraine. US President Donald Trump has sent no money to Ukraine since taking office in January and there is a $70bn hole in its funding needs for 2026, as donors account for at least half of the budget’s funds.

The EC has turned to the frozen Central Bank of Russia (CBR) reserves, two thirds of which are held by Belgium’s Euroclear, as the only source of money available. Brussels has objected to the idea as it will be on the hook if Ukraine defaults on the loan, or if the Kremlin wins anticipated lawsuits and courts demand its funds are returned to Moscow.

Earlier this month, European Commission President Ursula von der Leyen floated two alternative schemes to keep the funds flowing: member states make individual loans to Ukraine that don’t need a unanimous approval by the EU members; and the EU raises the money by collectively issuing bonds, which does. None of the member states are keen on either idea. Hungary, amongst others, is almost certain to veto an attempt to issue collective EU-backed bonds to fund Ukraine.

Ukraine faces the prospect of depleting its funds by February. It is still short somewhere between $8bn-$19bn (depending on war costs) for this year and the International Monetary Fund (IMF) said last month that Kyiv needs an additional $65bn of funds for 2026, which is so far unfunded. Economists have warned that Ukraine faces a macroeconomic collapse if the money is not secured sometime in the first quarter of next year.

Ukraine will be unable to cover its non-military expenditures in February without a loan, say economists. The planned budget deficit exceeds 18% of its GDP and will need at least €70bn in external financial support next year, according to the European Commission.

In addition, defence spending currently accounts for approximately 25% of Ukraine’s economic output that brings the total funding needs up to in excess of €100bn a year.

Some EU members are already providing Kyiv with substantial funds, but collectively it is still not enough to plug the hole. Berlin has increased its commitments from €3bn a year under the previous Scholtz administration to €11.5bn for next year. And other EU members like Sweden and Denmark have also pencilled in billions of euros of support. But even with these funds, the sums on offer remain an order of magnitude too little.

An attempt to pass legislation to create a mechanism for the Reparation Loans in November failed. A second vote is due to be held at the next EU summit on December 19, but expectations for success are low. The plan continues to face fierce opposition from Bart De Wever, the prime minister of Belgium, where the money is held, who wants assurances from all EU members that they will be prepared to share the risk should Belgium be forced to repay Russia’s money.

Last month, Norway suggested that it might use €100bn of its €1.8 trillion sovereign wealth fund cash-pile to collateralise the loan, but that idea seems to have been dropped in the meantime.

Adding to the uncertainty, among the points in the mooted US 28-point peace plan (28PPP) for Ukraine were some clauses that would take the Russian frozen funds off the table. The US was proposing to use $100bn of the funds for a Ukraine reconstruction fund. The remaining money would be used to seed a joint US-Russia investment fund to finance commercial projects. Reportedly, both these suggestions have been removed from the cut-down 19-point peace plan (19PPP) proposed in Geneva over the weekend.

Von der Leyen has fiercely opposed any suggestion by the US to use the frozen assets, which Brussels has made clear it wants to remain under European control for eventual use to pay for reparations after the war has ended. The cash would only become repayable to Moscow in the unlikely scenario that Russia agrees to pay war damages in an eventual ceasefire deal.

However, Ukraine’s ardent supporters are pushing the EC to come up with a solution. At an informal coalition of the willing meeting on November 25, France, Germany, the Netherlands, Lithuania and Luxembourg all lobbied the EC to outline the details of this plan B.

French President Emmanuel Macron said at the meeting that EU allies will finalize "in the coming days" a solution that will "secure funding" and "give visibility to Ukraine."

But EU members are all very reluctant to dip into their own pockets to finance Ukraine. As bne IntelliNews has reported, Europe can’t afford to take over the burden of supporting Ukraine from the US, as most EU countries are either in recession or approaching a crisis.

“We hope to be able to solve their hesitation,” one EU diplomat told Politico. “We really do not see any other possible option than the reparations loan.”