ECB rejects backstop for €140bn Ukraine loan proposal

ECB Rejects Backstop for €140bn Ukraine Loan Proposal

On December 2, 2025, the European Central Bank (ECB) announced its refusal to provide a backstop for a €140 billion loan intended for Ukraine. This decision poses a significant setback for the European Union"s (EU) strategy to finance Ukraine through a reparations loan, which was proposed to be backed by frozen Russian assets. The ECB"s stance highlights ongoing challenges faced by the EU in mobilizing financial support for Ukraine amid the ongoing conflict with Russia.

Key Details

The ECB"s decision stems from its assessment that the proposal put forth by the European Commission contravenes its operational mandate. According to multiple officials familiar with the discussions, the ECB determined that the plan would effectively result in direct funding to EU member states, which is prohibited under EU treaties due to concerns over inflation and the integrity of the central bank.

The European Commission"s proposal aimed to utilize frozen assets belonging to the Russian central bank, which are currently immobilized at Euroclear, a Belgian securities depository. The plan involved EU member states providing state guarantees to share the repayment risk associated with the €140 billion loan to Ukraine. However, commission officials expressed concerns that member states would not be able to raise the necessary funds quickly in a crisis, potentially leading to market instability.

In light of these concerns, the European Commission sought assistance from the ECB, asking if it could act as a lender of last resort to Euroclear Bank, the lending arm of the Belgian institution. However, ECB officials communicated that such an arrangement was not feasible. The internal analysis conducted by the ECB concluded that the proposal would violate EU treaty laws that prohibit monetary financing, a practice that could undermine the credibility of the central bank and lead to inflationary pressures.

The ECB explicitly stated, “such a proposal is not under consideration as it would likely violate EU treaty law prohibiting monetary financing.” This clear rejection underscores the ECB"s commitment to maintaining its independence and the integrity of its monetary policy framework.

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Background

The European Union has been actively seeking ways to support Ukraine financially in the wake of the ongoing conflict with Russia, which began in 2022. The use of frozen Russian assets as a means to fund Ukraine"s recovery has been a contentious topic within EU circles. The proposal to raise a €140 billion loan was seen as a potential solution to provide immediate financial assistance to Ukraine, which has been facing severe economic challenges due to the war.

Frozen Russian assets have been a focal point of discussions among EU leaders, as they seek to leverage these funds to support Ukraine without placing additional financial burdens on member states. However, the ECB"s recent decision complicates these efforts and raises questions about the viability of alternative financing mechanisms.

What"s Next

In response to the ECB"s refusal, the European Commission is reportedly exploring alternative proposals that could provide temporary liquidity to support the €140 billion loan to Ukraine. Two officials briefed on the matter indicated that the commission is actively working on solutions that would align with EU treaty laws while still addressing the urgent financial needs of Ukraine.

The ongoing discussions highlight the complexities of EU financial governance and the challenges of coordinating a unified response to the crisis in Ukraine. As the situation evolves, the EU"s ability to mobilize resources effectively will be crucial in determining the future stability and recovery of Ukraine.

For further context on recent developments within the EU, including political challenges faced by key figures, see our related coverage on Federica Mogherini"s recent arrest.

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