Smiles have “frozen” in Brussels, even more than the frozen Russian funds, as the solution that was chosen, which provides for joint borrowing, suffers from two significant weaknesses: (a) the 90 billion euro loan to Ukraine will never be repaid given the state of its economy, and (b) the solution of joint borrowing, which in reality transfers the burden of the solution onto the European peoples, faces legal challenges, for example the famous prohibition of the German Federal Constitutional Court on state bailouts, as well as the difficult fiscal position of the two major economies of the Eurozone, Germany and France.
German economists welcomed with satisfaction the solution that averted the worst outcome, the “bomb” of the theft of Russian assets that would have destroyed confidence in the euro and the European financial system, for the provision of further financial support to Ukraine.
However, as they point out, they do not consider it likely that the European Union will ever recover the 90 billion euros.
“It cannot be assumed that Ukraine will be able to repay the loan in the future,” Clemens Fuest, president of the Ifo Institute based in Munich, told Welt on Sunday 21 December 2025.
In his view, it is therefore important to ensure that the loan can be serviced in the medium term through spending cuts in other areas of the EU budget, which clearly demonstrates that austerity will be imposed in critical sectors, such as Cohesion, in order for the warmongering tactic of Brussels to continue.
“The priorities in Europe have changed and this must also be reflected in the EU budget,” the economist continued.
A similar view was expressed by Friedrich Heinemann from the Centre for European Economic Research (ZEW) in Mannheim: “Repayment of the loans to Ukraine can hardly be expected under any scenario.”
In the foreseeable future, Russia will be able to impose the refusal to pay reparations and the retention of its foreign exchange reserves in any possible peace agreement scenario, stated the head of the Public Finance Research Department.
A black day for Friedrich Merz
Chancellor Friedrich Merz (CDU), for his part, pointed out after the thriller agreement in Brussels: “The EU explicitly reserves the right: if Russia does not pay reparations, we will use, in full compliance with international law, the Russian assets for repayment.”
The current decision provides that Kyiv will not have to repay the money until it receives reparations from Moscow.
Contrary to Merz’s plans, the frozen assets of the Russian central bank will not be used immediately for loans totaling 90 billion euros over the next two years, if that ever happens.
Instead, the money will come from the EU budget.
The chancellor did not only have to retreat in the face of the concerns of Belgium, where the central securities depository Euroclear is based.
Ultimately, the plan also ran into resistance from states such as France and Italy, which pointed out, and rightly so, their excessively large legal and political risks arising from the seizure of Russian funds and the provision of corresponding guarantees.
How would China react? - The scenario of geopolitical madness
Some economists had warned early on against the use of seized Russian assets, after Merz publicly promoted this idea with an article in the Financial Times at the end of September.
Among them was ZEW researcher Heinemann: “The use of frozen assets damages the reputation of Western reserve currencies,” he told Welt in October.
Heinemann had already raised the question at that time: “How would the People’s Republic of China behave if it proceeds with its planning for Taiwan? Would it then preemptively withdraw all its assets from the eurozone?”
If Europe acts alone, especially without the United States, the potential damage to the European financial center would be particularly large.
“This would be an extremely strong advantage for the dollar against the euro,” he had stated.
Instead, he proposed securing the loans through the EU budget.
This is exactly what is now envisaged.
Heinemann referred to the extremely delicate balance of the decision of the European Council: “Ukraine will receive the absolutely necessary means for its struggle for survival and there will be a relatively fair European distribution of burdens.”
The guarantees in the event of default will be distributed according to the economic strength of the member states.
In other words, Germany will bear the largest share if necessary.
The disadvantage of this view, however, is that the principle of fair burden sharing is undermined, as Hungary, Czechia, and Slovakia have been explicitly excluded from the guarantees.
“This could create a precedent under future governments in the EU” that do not follow anti-Russian hysteria.
The problem with joint borrowing
It is envisaged that the European Commission will borrow from the capital markets.
The bonds will be secured through the so-called headroom, that is, the margin of billions of euros between the legally permitted maximum expenditures and the actual expenditures in the annual EU budgets.
This margin will now function as collateral for lenders.
Subsequently, the Commission will transfer the loan to Ukraine.
If we assume that support for Ukraine is presented as an urgent common interest of Europeans, financing through the EU can be justified, stated Fuest.
However, in his view, it would be preferable to use at least part of the frozen Russian assets and to send a credible message to Russia that the longer it continues the war, the more will be used.
But this is precisely the turn that the countries holding Russian assets fear, the loss of their credibility.
The EU should in any case retain the option of seizing Russian assets in favor of Ukraine, as an important means of pressure in possible future negotiations, he notes.
Eurobonds present legal gaps
Whether the solution that was chosen amounts to the famous “mutualization” of debt is a matter of dispute.
Eurobonds would be legally sensitive.
The German government had already pointed out during the period of support due to COVID19 that, unlike eurobonds, Germany would not assume joint and several liability.
Ultimately, securing through the EU budget was decided, for which the states are liable only proportionally and according to their economic strength.
Rescue mechanism as in the case of Greece – The problem of transparency
Heinemann considers that this mechanism comes very close to what eurobonds meant during the debt crisis.
“These are bonds for which there is indirect joint liability of 24 EU member states through its budget,” he stated.
At the first stage, in the event of default, the states will be called upon to pay according to their economic strength. If, however, a state cannot or does not want to pay, the additional losses will be shifted onto the remaining member states.
However, Heinemann does not expect that the EU debt agreement will have an immediate impact on national budgets, and therefore that the German taxpayer will be called upon to pay immediately.
There are financial techniques, at the expense of transparency, that have already been tested in the bailout of Greece.
In this way, the loans can extend over many decades.
“Thus, the problem is pushed into the very distant future,” he said, hinting that the EU is simply kicking the can forward without any future planning.
And the interest rates? - Cost three billion euros per year
Ukraine will not pay interest on the EU loans.
The investors who lend to the EU, however, demand interest.
At present, the interest rate stands at 3.2% annually for a duration of ten years.
This means that the EU budget will be burdened with interest of approximately 3 billion euros annually due to the new loans to Ukraine.
This amount is considered manageable. For comparison, the federal government of Germany expects to spend approximately 30 billion euros solely on servicing its debt in 2026.
Despite the “accounting beautification” and the lack of transparency, the loans are, in Heinemann’s view, “expenditures in a positive direction”.
And this is based on the narrative that a military collapse of Ukraine and its annexation by Russia would cost Germany and the European Union many times more.
If, however, this narrative collapses, the European peoples will discover that they fed the corrupt regime of Kyiv with billions of euros, serving the interests of the Brussels elite, and the outrage that will erupt will be enormous.
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