European Union (EU) leaders will task the European Commission (EC) on October 23 with drawing up a legal proposal to use 176 billion euros ($204 billion) of frozen Russian state assets for a loan to Ukraine - a move that could cover most of Kiev's financial needs for the next three years.
European diplomats with whom Radio Free Europe (RFE) spoke believe that there is a chance that the entire scheme could be agreed upon by the end of this year and that it would help fill the gap that is expected if the United States (US) is no longer willing to finance Kiev to the same extent as before.
The idea is not to confiscate Russian assets, which are mostly held in the Belgian financial markets company Euroclear, but to replace them with bonds issued by the EC, backed by EU member states and potentially other Group of Seven (G7) countries and other partners.
The money would then go to Kiev in the period 2026-2028 as a so-called "reparations loan", which Ukraine would only have to repay once Russia pays war reparations.
Roughly speaking, three issues still need to be worked out and will be negotiated in the coming weeks.
First, there are the legal issues, driven largely by Belgium, the host country of Euroclear. Then there are the debates about what Ukraine can spend the money on, driven largely by France.
And finally, there is a broader discussion about who will participate, how, and what risks it entails.
Belgium's concern
Belgium fears that some non-EU countries - such as China, for example - would start withdrawing their sovereign wealth from Euroclear amid fears that it could be seized for political reasons. This concern has also been expressed by the European Central Bank (ECB).
However, the EC made it clear in a discussion paper, which RFE/RL has seen, that taking these steps is not a confiscation, as the principal amount of the money would still remain intact. It is also a one-off, temporary measure.
Belgium also worries that it could recover the money itself if Russia sues and wins, although the EC has pointed out that Russian court orders are not enforceable in the EU.
More importantly, a system of bilateral guarantees by individual member states has also been proposed, which would be replaced in 2028 when the new long-term EU budget comes into force.
The question then arises as to how Ukraine should be allowed to spend the approximately 45 billion euros ($52 billion) it would receive each year.
Implemented without unanimity?
France has been vocal in insisting that the money be used mainly for defense procurement in Europe, while others have called for greater flexibility.
The EC proposed a compromise - one part of the money is spent on "Ukrainian technological and industrial defense base and its integration into the European defense industry, including the procurement of defense materials," and the other part is used for classic budget support.
The question now is whether all 27 EU member states will support the plan.
Unanimity is not required to sign a reparations loan, but the more member states sign up, the more risk is shared.
Brussels ideally wants some of the G7 countries to be involved to ensure this is not an EU-only venture, given that Russian central bank funds exist elsewhere. It would also help prevent a potential outflow of euro assets if, for example, the UK and Japan also commit.
One EU official told RFE/RL that if, say, Hungary and Slovakia do not join, this could be compensated by several wealthy countries outside the EU stepping up support instead.
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