© Philipp von Ditfurth/dpa
As the Berliner Zeitung points out, the decision to raise funds on the capital markets backed by EU budget guarantees leaves open the question of who exactly will bear the ultimate financial burden in the event of the borrower’s default or Russia’s refusal to pay reparations.
A New Mechanism to Replace Direct Confiscation
As reported by Logos Press, the initial plan—which involved directly using the frozen assets of the Central Bank of the Russian Federation to finance Ukraine—was rejected due to legal and financial risks highlighted by a number of European countries.
Instead, EU leaders approved a scheme under which the European Commission will borrow €90 billion on capital markets for the years 2026–2027, with the so-called“headroom” of the EU’s general budget serving as a guarantee.
Under the terms of the agreement:
– Ukraine receives a preferential, interest-free loan, and the EU budget assumes responsibility for paying the interest.
– Repayment of the principal is legally tied to future reparations from Russia.
– Exemptions for certain countries: Hungary, the Czech Republic, and Slovakia secured terms that protect their national contributions from being used to cover this loan.
The main risk: Who will pay in the event of a default?
The first tranches of the EU loan are already reaching Ukraine, which allowed the country to reach peak levels in June following the cessation of financial support from the U.S.
However, economists and analysts note that the likelihood of Ukraine actually repaying these funds in the foreseeable future is extremely low. If reparations do not materialize, the financial burden will effectively be shifted to the European budget.
But even here, not everything is clear, notes the Berliner Zeitung. Officials in Brussels cannot provide a concrete answer as to how and by whom this loan will ultimately be repaid and the financial risks covered.
“Apparently, not even the European Commission knows this. According to Commission representatives, it is currently impossible to determine either the amount of compensation for borrowing costs, whether this instrument will be used at all as part of the 2027 budget process, or its total amount,” the publication writes.
The Berliner Zeitung attempted to determine what portion of the loan to Ukraine would fall directly on Germany’s shoulders. However, due to the lack of clarity regarding repayment procedures, the European Commission was unable to provide an answer. “Therefore, it is not possible to provide a breakdown by member state,” states the response to a request from European Parliament member Fabio De Masi (“Sari Wagenknecht Alliance”), which is available exclusively to the Berliner Zeitung, the newspaper notes.
It also notes that since the EU’s budget is primarily funded by the bloc’s largest economies, the greatest potential risks are borne by donor countries such as Germany and France. If the guarantee mechanism (headroom) is used, the European Commission has the right to demand additional funds from member states in proportion to their gross national income (GNI).
