EU leaders in Brussels are racing to lock in funding for Ukraine through 2026–27, with a €90bn “reparations loan” backed by frozen Russian state assets now the preferred route. European Commission president Ursula von der Leyen said she would not leave the summit without a solution, after Volodymyr Zelensky warned that without a spring tranche Ukraine will have to scale back drone production.

The proposal’s mechanics matter for markets. Rather than outright confiscation, the Commission would require Euroclear to reinvest immobilised Russian central bank cash into zero‑coupon AAA bonds issued by the EU. The capital would still legally belong to Russia, but the EU would use the cash flows to lend to Ukraine. The plan envisages €90bn in 2026–27, with roughly €165bn ultimately available after accounting for a €45bn G7 loan. EU governments also moved last week to freeze the assets indefinitely.

The sums are large and concentrated. About €210bn of Russian sovereign assets are frozen in Europe, roughly €185bn at Brussels‑based Euroclear, much of it already in cash as earlier holdings matured. Belgium, home to Euroclear, is demanding legal and financial shields before signing off. European Council president António Costa has signalled that no solution will be forced against Belgium and that risk must be shared.

The ratings angle arrived on cue: Fitch placed Euroclear Bank on Rating Watch Negative, citing potential legal and liquidity risks if liabilities to Russia became payable while replacement EU bonds run longer. The agency flagged the possibility of timing mismatches on Euroclear’s balance sheet and said it would reassess after leaders set the policy detail.

Euroclear’s own disclosures show sanctioned Russian balances of about €194–195bn on its balance sheet in 2025 and around €5bn already channelled to the EU via the existing ‘windfall’ interest regime. Management has warned the new loan structure remains “fragile” without robust safeguards.

Legal jeopardy is not theoretical. Russia’s central bank has sued Euroclear in Moscow seeking roughly $230bn in damages, with a preliminary hearing due on 16 January 2026. The European Commission has called the case speculative and insists institutions will be protected, but the litigation underscores why Belgium wants risk‑sharing across the bloc.

Politically, momentum is building but not uniform. Poland’s Donald Tusk framed the choice as “money today or blood tomorrow,” Germany’s chancellor Friedrich Merz has argued to press ahead, while Italy’s Giorgia Meloni says Rome will back a scheme only if the legal footing is solid. Hungary remains the loudest opponent.

Process will decide the outcome. The reparations‑loan approach can pass by qualified majority if at least 15 countries representing 65% of the EU population agree. By contrast, joint EU borrowing against the budget would require unanimity, a non‑starter given Viktor Orbán’s stance.

Washington’s parallel diplomacy could shape timelines. U.S. and Russian representatives are slated to meet in Miami to discuss a peace framework, with Kremlin envoy Kirill Dmitriev expected to meet Trump envoys Steve Witkoff and Jared Kushner. Moscow says it is preparing contacts; Kyiv is engaging on both tracks.

For Kyiv, the math is urgent. Zelensky estimates a $45–50bn budget gap next year without EU cash, while the Commission pegs Ukraine’s total 2026–27 need at around €135.7bn. The proposed €90bn would cover roughly two‑thirds and signal Europe’s staying power as the U.S. tests a diplomatic route.

For investors, two issues stand out. First, supply: channelling immobilised cash into zero‑coupon EU paper expands the stock of AAA Commission bonds over time, with implications for euro‑rate benchmarks. Second, infrastructure risk: Fitch’s watch warning highlights a tail risk if courts ever ordered payouts while Euroclear holds longer‑dated assets. None of this implies immediate dislocation, but it raises the bar for legal and liquidity safeguards.

What to watch next: whether leaders hard‑wire risk‑sharing to satisfy Belgium; how far Hungary and Slovakia push their objections; and if Fitch escalates to a downgrade should protections fall short. The voting threshold is clear; the politics less so-and markets will price the difference quickly.