The European Union’s proposal to use frozen Russian state assets to help finance Ukraine’s long-term needs is drawing warnings about potential pressure on government borrowing costs. Despite these concerns, analysts say the impact on European debt markets is likely to be modest.
Brussels has been searching for a durable funding mechanism for Kyiv as the war enters its fourth year. The leading option under discussion is a €140 billion “reparation loan” backed by immobilised Russian central-bank assets held primarily by Euroclear, the Belgium-based clearing giant. The plan would rely on proceeds generated from those assets rather than seizing them outright.
Euroclear chief executive Valérie Urbain recently cautioned in a letter, reported by the Financial Times, that the proposal could increase risk perceptions among international investors. She warned that this might widen sovereign bond spreads and raise borrowing costs across EU member states. The concern centres on whether investors interpret the plan as a step toward confiscation, which is barred under international law. Any loss of confidence in Europe as a safe custodian of foreign reserves could push yields higher.
Yet several economists told Euronews Business that the risk is limited. Robert Timper, chief strategist on the Global Fixed Income Strategy team at BCA Research, said market reaction is expected to be minimal. He noted that the more significant shock occurred in February 2022 when the EU froze Russian central-bank assets days after the invasion of Ukraine. That move created only a brief shift in bond markets. “What ultimately is done with these assets should have a much smaller effect,” he said.
Nicolas Véron, senior fellow at the Brussels-based think tank Bruegel, echoed that view, recalling that the initial freeze demonstrated Europe’s willingness to restrict access to assets under extraordinary circumstances — yet global markets remained stable. Analysts at Capital Economics said fears of mass withdrawals by foreign central banks are overstated, arguing that many have limited alternatives for investing in liquid, high-grade assets outside Western systems.
The loan’s structure is still being refined. According to Capital Economics, Euroclear would invest cash balances held on behalf of the Russian Central Bank into a long-dated, zero-coupon EU bond. The proceeds would be lent to Ukraine, while Euroclear’s liability to Moscow would remain unchanged. The Commission argues this preserves legal protections because the assets themselves would not be seized.
The plan faces political and diplomatic risks. Russia is expected to denounce the move as illegal, raising the likelihood of retaliation or legal claims. Several Western firms have already faced difficulties exiting the Russian market due to restrictive policies imposed by Moscow. Belgium’s Prime Minister Bart De Wever has demanded strong guarantees to shield Euroclear from losses or reprisals.
European Commissioner Valdis Dombrovskis has defended the plan, saying it could provide significant support for Ukraine without placing major new fiscal burdens on EU governments. The proposal is expected to be finalised by year-end, with potential disbursements starting in early 2026 pending national approvals.
Ukrainian President Volodymyr Zelenskyy has urged the EU to move quickly, saying Kyiv needs the funds at the start of 2026. The €140 billion package represents nearly 80% of Ukraine’s GDP last year and about 0.8% of the EU’s GDP.
While political agreement remains the final obstacle, officials warn that failure to secure financing could weaken Ukraine at a critical stage of the war and increase security risks for Europe.
