The European Central Bank (ECB) has signalled to the European Commission that a plan for it to serve as a safety net or guarantor for a very large European Union loan to Ukraine falls outside its mandate and would likely breach European Union treaty rules against “monetary financing”. The clarification, partly confirmed to Paperjam, is a setback for the European Commission’s “reparations loan” proposal, first announced by European Commission president Ursula von der Leyen during the State of the Union address on 10 September 2025. ECB officials stress that the central bank supports efforts to finance Ukraine’s reconstruction, but that its role is constrained by the treaties.
From immobilised assets to reparations concept
Following the unprovoked and illegal military aggression of Russian forces against Ukrainian territory in February 2022, the international community prohibited any transaction related to the assets and reserves of the Central Bank of Russia. As a result, €260bn of Central Bank of Russia assets worldwide were immobilised, with more than two thirds of them, about €210bn, held in the EU.
Two years into the war, and with no visible peace plan or solution, the European Council agreed to use the revenues generated from these immobilised assets in favour of Ukraine’s needs. Depending on interest rates, these extraordinary revenues were estimated to generate €2.5bn to €3bn a year.
As the war is dragging on well beyond three and a half years, and humanitarian, infrastructure and economic costs are mounting, the Commission floated an idea of a reparations-linked loan that would go beyond the interest income and look to the immobilised Russian assets themselves. In November 2025, European commissioner for defence and space Andrius Kubilius suggested that the amount to be raised under such a reparations loan could be in the region of €140bn.
Who issues--and who insures--a €140bn loan?
A loan on this scale can only realistically be issued by a large consortium, whether inter-governmental or -institutional, or by a central bank such as the ECB. However, the ECB does not act as a sovereign lender in this way, as such lending is not part of its remit.
One additional challenge is who would provide insurance or guarantees for such a loan if legal challenges were to arise in future. For its part, Belgium, where Euroclear is headquartered and where much of the cash from immobilised Russian assets is held, has warned that using these balances to finance a very large loan to Ukraine could expose the country and the depository to legal and financial risks if sanctions were lifted and assets had to be returned quickly.
Keeping these risks in mind, Belgian prime minister Bart De Wever has called for shared responsibility, insisting that other EU capitals provide legally binding, unconditional and irrevocable guarantees to share any downside risk before the plan can proceed. He has also linked the debate to wider geopolitical considerations, warning that certain uses of frozen assets could complicate a future peace agreement between Russia and Ukraine.
Against this backdrop of limited options and reluctance among some member states to take on additional risk, the idea emerged that the ECB could act as a guarantor or a lender-of-last-resort. Though Paperjam could not verify whether such propositions were formally presented to, or discussed by, the ECB’s governing council.
Why the ECB sees a legal red line
Initially, EU countries discussed providing state guarantees to back the EU’s borrowing from Euroclear. Policymakers, however, worried that these national guarantees might not be sufficient to reassure markets in the event of a sudden unfreezing of Russian funds. A Eurosystem liquidity backstop to Euroclear was therefore examined as an additional safeguard, though no timelines or potential participants were specified.
An ECB spokesperson confirmed to Paperjam that “such a proposal is not under consideration as it would likely violate EU Treaty law prohibiting monetary financing” and referred to treaty provisions that prohibit the central bank from directly financing member states or assuming their obligations, a practice known as monetary financing. The ECB presents its stance as a strict, technical reading of European Union law and underlines that it supports efforts to finance Ukraine’s reconstruction but must apply treaty constraints consistently.
From the ECB’s perspective, a liquidity line of this kind would cross a legal red line because, in substance, it would amount to the central bank covering member states’ contingent liabilities on the loan and thus to indirect monetary financing of governments. The treaties governing the euro explicitly prohibit the ECB and national central banks from granting overdraft facilities or other credit facilities to public authorities, or from purchasing their debt instruments directly.
For a central bank that has spent the past two years dismantling emergency bond-buying programmes launched during the pandemic and the energy price shock, taking on a large, sanctions-related contingent obligation would run counter to efforts to normalise its balance sheet and preserve a clear separation between monetary and fiscal policy. ECB officials emphasise that these are legal and technical constraints, not a policy judgement against Ukraine’s reconstruction or against using Russian assets in support of Ukraine.
What next
EU leaders are due to meet on 18 and 19 December for a summit at which long-term Ukraine financing and the future of immobilised Russian assets are expected to feature prominently (official agenda yet to be published). With an ECB backstop now ruled out on legal grounds, the Commission probably go back to the drawing board to secure sufficient liquidity and risk-sharing for any large-scale loan backed by the immobilised Russian assets, while remaining within the constraints of the EU treaties and institutional mandates.
