The loan will sustain Kyiv financially, including its defense effort, but it will not be sufficient for a war-ending strategy. For this, the EU should have decided to tap Russian frozen assets, as had been widely anticipated.<\/p>\n\n\n\n
The EU\u2019s two-year \u20ac90 billion loan<\/a> agreed in December is its most consequential financial commitment to Ukraine since the start of Russia\u2019s full-scale invasion in 2022. It is worth almost double the earlier \u20ac50 billion 2024\u20132027 Ukraine Facility. The zero-interest loan will cover Ukraine\u2019s financing gap, enables continuation of support from the International Monetary Fund (IMF), and allows the country to keep defending itself. But, in a moment when there is growing uncertainty about the United States\u2019 commitment to supporting Ukraine, by leaving intact the approximately \u20ac200 billion in frozen Russian sovereign assets the EU encouraged Moscow to interpret its decision as weakness rather than restraint.<\/p>\n\n\n\n What the Loan Delivers<\/strong><\/p>\n\n\n\n The loan covers fully the financing needs of Ukraine for this year and the next, with a \u20ac60 billion non-budgetary portion for the procurement of weapons. The latter through a special account, with the approval of the EU.<\/p>\n\n\n\n The IMF estimates<\/a> Ukraine\u2019s financing gap for 2026\u20132027 at about $63 billion, but this is based on an optimistic 4.5% growth forecast for this year, much higher than the market consensus. The \u20ac90 billion looks sufficient to cover a greater gap, though. Besides, more previously committed funds will come from other sources as well as likely from the new IMF program.<\/p>\n\n\n\n The loan is designed to be debt-neutral for Ukraine as it is supposed to be repaid only once the country receives reparations from Russia. Until then, the Russian assets will remain frozen, and the EU will reserve the right to use them to repay the loan. To fund the loan, the EU will borrow on capital markets. The disbursing of tranches will be conditional on rule-of-law and anti-corruption benchmarks, and is expected to start in the second quarter of this year.<\/p>\n\n\n\n This enables the IMF in the coming months to approve a new $8 billion Extended Fund Facility (2026\u20132029) and ensures the continuity of international financial assistance. Put simply, Ukraine will not run out of money.<\/p>\n\n\n\n However, there is a consequential political choice embedded in the EU loan\u2014namely, what it avoids. The Russian frozen assets, largely held at Euroclear in Belgium, generate \u20ac3\u20135 billion annually and this finances the G7\u2019s \u20ac45 billion Extraordinary Revenue Acceleration for Ukraine mechanism, but the principal remains untouched.<\/p>\n\n\n\n Sustainability Is Not Victory<\/strong><\/p>\n\n\n\n Ukraine\u2019s annual defense expenditure has not changed substantially since 2022, reaching<\/a> \u20ac60 billion last year, while Russia\u2019s spending stands<\/a> at about \u20ac130 billion annually. The defense budget boost since 2022 has allowed Ukraine to keep fighting but it does not alter the battlefield balance or convince Russia that time is not on its side. For the fifth consecutive year, it is a survival budget: sufficient to slow Russia\u2019s advance but insufficient to enable a decisive Ukrainian breakthrough.<\/p>\n\n\n\n Currently at approximately 43% that of Russia\u2019s, Ukraine\u2019s military budget needs to be significantly increased. Even using up the \u20ac60 billion account for buying arms and developing defense-industrial capacity over the next two years will not be enough for winning the war\u2014and it is significantly less than the amount in Russian frozen assets. <\/p>\n\n\n\n They interpret the <\/strong>EU\u2019s<\/strong> caution not as prudence about the legality of using the assets but as fear of retaliation by Moscow.<\/strong><\/em><\/p>\n\n\n\n Recent remarks by Russian officials show that they see the decision regarding the frozen assets as evidence of unwillingness to impose economic punishment on Russia. They interpret the EUs\u2019 caution not as prudence about the legality of using the assets but as fear of retaliation by Moscow.<\/p>\n\n\n\n The EU\u2019s decision has to be seen also against the changing transatlantic backdrop. The discussions in Washington about using the frozen assets risk reframing them from instruments of accountability to a sweetener for Moscow as part of a negotiated peace settlement. Effectively that would be offering Russia financial relief in exchange for a ceasefire.<\/p>\n\n\n\n What is more, as an analysis<\/a> by the German Marshall Fund of the United States has highlighted, US support for Ukraine is entering a more conditional phase, shaped by domestic politics, the gap between Congress and the White House on European security issues, and defense-industrial constraints. And an abrupt withdrawal of US support to the global security architecture remains very much on the table.<\/p>\n\n\n\n Europe as a Prey or a Power<\/strong><\/p>\n\n\n\n The EU\u2019s lack of strategic decisiveness and constant \u201ctoo little, too late\u201d raising of the ceiling to its support for Ukraine invites pressure from Russia. This gives opportunities for Moscow to impact the EU\u2019s internal and external affairs. To avoid being seen as a prey rather than a power by other global actors, the EU needs to align its financial support with the goal of tilting the military balance in Kyiv\u2019s favor. Ukraine\u2019s \u20ac60 billion annual defense expenditure should be at least doubled to the level of the Russian war budget.<\/p>\n\n\n\n The problem is not capacity. Matching Russia\u2019s war effort financially would amount to less than 1% of the EU\u2019s approximately \u20ac17 trillion GDP. The problem is how the EU can now do this, having avoided the challenge in its loan and since it looks like there is for now no prospect of using Russia\u2019s frozen assets for funding Ukraine\u2019s military capacity for. Yet it must find a way because financing Ukraine\u2019s survival without enabling its victory will prolong the war at a higher cumulative cost for the EU\u2014financially, politically, and militarily.<\/p>\n\n\n\n Maria Repko is a <\/em>ReThink.CEE Fellow 2025<\/em><\/a> of the German Marshall Fund of the United States.<\/em><\/p>\n\n\n\n