The Reparations Loan To Ukraine Is Dividing Europeans

Hello! Today is 15 December 2025, and here is the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on LinkedIn.

Paul Dermine is a professor of EU law at the Université libre de Bruxelles (ULB). He is an affiliated member of the Institute for European Studies at ULB. Before joining ULB, Paul was a référendaire at the Court of Justice of the EU in Luxembourg.​

Europe once again finds itself with its back against the wall on the Ukrainian question. According to IMF estimates, Kyiv will need 135 billion euros over the next two years to keep its economy afloat, ensure continuity of state services, and pursue its war effort.

In the current geopolitical configuration, there is no doubt that it falls to the EU and Europeans to provide the bulk of this financial support. On 3 December, the Commission proposed a reparations loan to Ukraine. This proposal is dividing Europeans.​

How Is The Financial Package Structured?

With the budgetary position of many European states already strained, the Commission is betting on an alternative source of financing: frozen Russian assets held in Europe — most notably the 185 billion euros belonging to the Central Bank of Russia currently blocked at Euroclear, the Brussels-based central securities depository.

The structure proposed is both innovative and, at least on paper, cost-free for the EU. Under the reparations loan, Euroclear and other European financial institutions holding frozen Russian assets would be required to lend these assets to the EU, up to a ceiling of 210 billion euros.

The funds would transit via the Commission and then be on-lent to Ukraine. Repayment would be required only once Russia has ended its war of aggression and paid reparations.

This loan would therefore constitute an advance on the financial reparations to which Ukraine would be entitled under international law.​

The Package’s Legality In Question

While debate continues, many experts argue that the plan is compatible with international law. As long as the operation is structured as a loan rather than an outright confiscation, and remains temporary and reversible, it can be characterised as a countermeasure and is therefore, prima facie, lawful.

Nevertheless, the reparations loan raises significant financial, legal, and reputational concerns. These have been voiced most forcefully by Belgium, as the host state of Euroclear.

For several weeks, Prime Minister Bart De Wever has repeatedly expressed his reservations to European partners. Although his government enjoys unusually broad domestic consensus on the issue, Belgium’s resistance to the Commission’s plan has been poorly received elsewhere in the EU.

With a crucial European Council meeting scheduled for 18–19 December, Belgium appears increasingly isolated. Yet the risks it highlights are far from hypothetical.

Financial Risks

Belgium fears it could be left alone to bear the financial consequences of the operation if sanctions were lifted and Russia demanded the return of assets that had meanwhile been lent to Ukraine.

Belgium therefore insists that any potential losses be fairly shared among Member States, in line with the principle of European solidarity. While one of the Commission’s proposed regulations provides for a system of national guarantees, participation would be voluntary, and Belgium considers the mechanism insufficiently robust.

Legal Risks

One of the legal bases for the plan, Article 122 TFEU, is fundamentally contested.​

Article 122 TFEU, sometimes referred to as the emergency clause of the EU Treaties, allows the adoption of exceptional measures intended to protect the European economy in times of crisis.​

In the context of the reparations loan, it is used both to make the freeze on Russian assets permanent and to compel their availability for the operation.

This reliance on Article 122 reflects a broader trend toward its increasingly expansive use since the pandemic, the energy crisis, and the deterioration of the European security environment — a trend that has not gone unchallenged.

The European Parliament, largely sidelined under the procedure provided for in Article 122 TFEU, has denounced what it sees as an abusive use of the provision. It recently brought an action before the Court of Justice of the EU against the SAFE regulation adopted in May 2025 to finance defence investments, arguing that it was unlawfully based on Article 122.

In the context of the reparations loan, the Commission justifies recourse to this provision in the name of European economic stability and the macroeconomic disruptions that a sudden deterioration of the security situation in Ukraine would cause. This approach was endorsed by the Council last Friday.​

Article 122 also conveniently allows the Commission to bypass potential vetoes by pro-Russian Member States such as Hungary or Slovakia, as it operates under qualified-majority voting rather than unanimity, which normally applies in the field of foreign and security policy.

This is a very borderline use of the provision. If the plan is adopted, this aspect is highly likely to be challenged before the courts — by Belgium, Hungary, or even Euroclear itself.

Reputational Risks

It is reasonable to expect the operation to spook foreign investors and erode the credibility of European financial institutions, and by extension the attractiveness of European capital markets.

At a time when, in the wake of the Letta and Draghi reports, the EU is seeking to bolster the appeal of its markets in order to finance the investments it so badly needs, this would amount to shooting itself in the foot.​

Moment Of Choice

Contrary to what the EU seeks to suggest, it is illusory to think that Russia will one day pay reparations sufficient to guarantee full repayment of the funds lent under the reparations loan.

One way or another, European taxpayers will ultimately bear all or part of the financial burden. A more direct form of EU financing — backed by a new common borrowing operation modelled on NextGenerationEU — would likely be less risky, more transparent, more politically honest, and ultimately more genuinely solidaristic with Ukraine.

The institutional obstacles, starting with the requirement of unanimity, are considerable. Yet recent experience shows that, in times of crisis, they can be overcome.

This is therefore a moment of existential choice for the European Council. The decisions taken next week will weigh heavily not only on Ukraine’s future, but also on the future trajectory of the European Union itself.

MERCOSUR • A decisive week lies ahead for the EU–Mercosur trade agreement.

In October, the European Commission proposed a bilateral safeguard clause intended to reassure more sceptical Member States such as France, Italy and Poland.

This clause would enable the EU to temporarily suspend tariff preferences on agricultural imports from Mercosur countries if such imports cause serious harm to European producers.

The Council has endorsed the proposal without amendment, though overall discussions on the trade deal remain open.

According to Politico, the Council vote on the EU-Mercosur deal is expected this week, despite persistent opposition from several capitals — France chief among them — that consider that the bilateral safeguard clause is not enough.

Adoption requires a qualified majority, meaning at least 15 Member States representing 65% of the EU population.

Meanwhile, on 8 December, the European Parliament’s international trade committee adopted a significantly stricter version of the bilateral safeguard clause, offering greater protection to European farmers. The text is due to be put to a plenary vote this week.

Should the Parliament endorse a different version of that clause, interinstitutional negotiations will be required, potentially delaying the timetable. Commission President Ursula von der Leyen and European Council President Charles Michel are scheduled to travel to Brazil on 20 December for an official signing ceremony.

LOW-VALUE PARCELS • From 1 July 2026, low-value parcels — those worth under €150 — imported into the EU will be subject to a 3-euro levy. Such parcels are currently exempt from customs duties.

Adopted by the Council on 11 December, the measure is intended to address the growing volume of small packages from e-commerce platforms such as Shein.

The Commission estimates that approximately 65% of low-value parcels are purposefully undervalued to avoid taxes, and that 91% originate from China.

The measure is temporary. A broader customs reform is underway and will create a new EU Customs Data Hub that will enable authorities to apply the full customs regime to small parcels. According to the Commission, the system should be operational by 2028.

PHARMA • On 11 December, the European Parliament and the Council of the EU reached an agreement on the EU’s pharmaceutical package — the most comprehensive reform of the bloc’s medicines legislation in more than two decades.

Presented by the European Commission in April 2023, the package consists of a directive and a regulation aimed at improving access to medicines, encouraging innovation in areas of unmet medical need, addressing shortages, and strengthening Europe’s competitiveness in the pharmaceutical sector.

The compromise reached on the protection of innovative medicines is significantly less far-reaching than the Commission’s original proposal. At present, innovative medicines benefit from a 10-year initial protection period, with a possible one-year extension — a maximum of 11 years in total.

The Commission had proposed shortening the initial period to 8 years, subject to extensions based on specific conditions.

Legislators instead opted to reduce the initial period to 9 years and allow one-year extensions when a product fulfils certain conditions (for example, when it addresses an unmet medical need). The currently applicable overall ceiling of 11 years remains unchanged.

Other provisions reinforce the EU’s response to antimicrobial resistance, streamline regulatory procedures — notably reducing the European Medicines Agency’s authorisation timeline from 210 to 180 days — and improve supply security across the single market.

The agreement now awaits formal adoption by both institutions.

GOOGLE • The European Commission has opened an antitrust investigation into Google over possible anti-competitive practices related to its use of online content for AI use.

The Commission suspects that Google (i) used material from online publishers to generate its “AI Overviews” — answer summaries displayed beneath the search bar — and its conversational “AI Mode” without providing appropriate compensation and allowing publishers to opt out, and (ii) relied on YouTube content to develop generative AI models, without providing appropriate compensation and allowing content creators to opt out.

Such practices could amount to an abuse of dominance under EU competition law.

• In a series of articles entitled “Who killed Europe’s single market dream?”, the FT explores why it is so difficult revive the single market as a growth engine.