The reparations loan for Ukraine is in doubt after Italy, Bulgaria, Malta and the Czech Republic joined the Belgian opposition and called for "alternative solutions". EU leaders will gather on Thursday to decide how to meet Kyiv's financial and military needs for the next two years.
The European Union's proposal to issue a reparations loan to Ukraine is facing "different pressures from different sides", EU foreign policy chief Kaja Kallas has warned as more countries add their voices to the chorus of scepticism.
"The most credible option is the reparations loan, and this is what we are working on. We are not there yet, and it is increasingly difficult, but we are doing the work," EU High Representative Kallas said on Monday morning before heading into a meeting of foreign ministers in Brussels.
"We still have some days," she added, referring to the crucial summit that will take place on Thursday and see leaders decide how to meet Ukraine's financial and military needs for the next two years. The EU is expected to contribute at least €90 billion.
Her remarks come after Italy, Bulgaria, Malta, and the Czech Republic expressed fresh reservations about the reparations loan, significantly strengthening Belgium's opposition.
Solutions to act as a 'bridge'
Under the scheme, the European Commission would channel the immobilised assets of the Russian Central Bank into a zero-interest line of credit for Ukraine.
Kyiv would be asked to repay the loan only after Moscow agreed to compensate for the damages caused by its war of aggression, which is unlikely.
The bulk of the assets, €185 billion, is held at Euroclear, a central securities depository in Brussels. The remaining €25 billion is spread across private banks in five countries.
From the onset, Belgium has firmly resisted the initiative, fearing it would face Russia's retaliation and multi-billion-euro losses at court. Last week, the Russian Central Bank filed a lawsuit against Euroclear.
The Commission has tried to allay the Belgian concerns by offering a set of guarantees and safeguards to nullify any arbitration attempt. To prevent a sudden liquidity crisis, the EU has indefinitely immobilised the Russian assets.
But in an unexpected twist, Italy, Bulgaria and Malta joined Belgium on Friday with a joint declaration that called on the Commission to explore "alternative solutions" with "predictable parameters" and "significantly less risks".
These solutions, they said, should act as a "bridge" to ensure Kyiv remains financed and leaders have more time to debate the two main options on the table: the reparations loan based on the Russian assets or common borrowing at the EU level.
Separately, Andrej Babiš, the new prime minister of the Czech Republic, said he agreed with the concerns of Belgian Prime Minister Bart De Wever, whom he met last week, and suggested the Commission "must find other ways" to assist Kyiv.
"In any case, we will not financially contribute to the aid," Babiš said. "We cannot provide any money from the Czech budget or guarantees."
Getting Belgium on board
On Monday, Kallas admitted the discussions were "difficult" but stressed the reparations loan remained the most "credible" solution because joint debt would require the unanimity of the 27 member states. Hungary has said it would not consent.
"There are different pressures from different sides, but we also need to be very clear-eyed. The other options are not really flying. We have tried that before," Kallas said.
"The reparations loan is based on the Russian frozen assets. That means it does not come from our taxpayers' money, which is also important," she added.
"It also sends a clear signal that if you do all this damage to another country, you have to pay for the reparations."
Even if technically speaking the reparations loan could be approved with a qualified majority, and therefore circumvent the opposition, Kallas said it would be "important" that at least Belgium, the main custodian of the assets, gets "on board".
"What I want to say is that, of course, some countries in Europe are more used to the threats presented by Russia than others, and I want to tell you that these are only threats," she says, referring to fears of retaliation and confiscation.
"If we keep united, we are much stronger, and these are just threats that Russia is posing, even what we have seen before. So, I really want all of us to have clear heads."
Despite the Commission's overtures, Belgian Prime Minister Bart De Wever remains sceptical about the reparations loan but says he is open to giving his blessing if three key conditions are met: full mutualisation of risks, adequate safeguards to ensure liquidity and burden-sharing among all EU countries holding Russian sovereign assets.
France, which holds about €18 billion in Russian assets in private banks, has remained tight-lipped on whether it would channel those funds into the reparations loan.
The debate over financing Ukraine coincides with the White House's push to broker a peace deal between Kyiv and Moscow, which initially kept European leaders sidelined from the talks.