Ukraine is pressing European governments to find a new mechanism for using Moscow’s immobilised central-bank reserves as Kyiv confronts a multibillion-dollar budget shortfall and mounting defence costs

Ukraine is renewing its campaign to gain access to hundreds of billions of euros in frozen Russian assets as the government confronts a widening funding gap and growing uncertainty over how long existing Western financial support can sustain the country’s war effort.

The debate has returned to the centre of European diplomacy after Sweden, Poland, the Netherlands and Spain called on the European Union to explore new ways of putting Russia’s immobilised sovereign assets to work for Ukraine.

Approximately €210 billion in Russian central-bank reserves remain frozen across the European Union, the overwhelming majority of them held at the Brussels-based securities depository Euroclear. Supporters of using the money argue that Russia, rather than European taxpayers, should ultimately bear the financial burden of sustaining Ukraine and rebuilding the country.

For Kyiv, the question has become increasingly urgent.

Ukraine’s Finance Minister Sergii Marchenko said on September 4 that the country continues to require around $50 billion a year in external financing. Preliminary estimates indicate that Ukraine could face an uncovered financing gap of about $32.6 billion in 2027 alone.

The pressure is being compounded by rising military expenditure.

President Volodymyr Zelenskyy has warned European partners of a substantial shortfall in defence funding, as Ukraine attempts to purchase more air-defence systems, long-range weapons and ammunition while simultaneously expanding its domestic defence industry.

Recent estimates discussed in Brussels put the defence gap at more than €20 billion, adding to Ukraine’s already formidable civilian budget requirements.

The result is a financial dilemma for Ukraine’s allies.

Western governments have already committed enormous sums to keeping the Ukrainian state functioning and supplying its armed forces, but political appetite for repeatedly financing new support packages from national budgets is becoming more constrained.

That has revived interest in one of the most politically attractive — but legally complicated — options available: Russia’s frozen reserves.

From interest payments to the principal

Europe is already using income generated by the immobilised Russian assets.

On August 3, the EU received another €1.4 billion in windfall profits generated from Russian central-bank funds held by European securities depositories. Since the assets were frozen, they have generated roughly €8 billion in extraordinary revenues that can be directed towards Ukraine.

But Kyiv wants Europe to go considerably further.

Rather than merely spending the interest and profits produced by the assets, Ukraine and several supportive governments want to find a mechanism capable of mobilising much larger portions of the underlying capital.

That could potentially unlock tens or even hundreds of billions of euros.

The political argument is straightforward: the assets belong to the Russian state, whose invasion created the destruction that Ukraine and its partners are now financing.

The legal argument is considerably more difficult.

Central-bank reserves traditionally enjoy strong protections under international law, and outright confiscation could create substantial legal, financial and diplomatic risks.

European governments therefore have been searching for structures that could use the value of the Russian assets without formally seizing ownership of them.

A failed plan returns to the table

One previous proposal envisioned converting the immobilised reserves into collateral for a large zero-interest “reparations loan” to Ukraine.

Under that concept, Russia would theoretically remain the owner of the assets and could recover them if Moscow ultimately paid reparations for the destruction caused by the war.

The plan gained support from several influential European governments but collapsed last year largely because of opposition from Belgium.

Belgian authorities argued that because Euroclear holds approximately €185 billion of the frozen Russian funds, Belgium would face disproportionate exposure to Russian lawsuits and potential retaliation if the assets were mobilised.

Prime Minister Bart De Wever demanded that any financial and legal risks be collectively guaranteed by other EU governments rather than concentrated in Belgium.

Euroclear itself has also warned against measures that could undermine confidence in European financial markets or expose the institution to enormous litigation.

Those concerns remain unresolved.

Belgian Foreign Minister Maxime Prévot said this week that his country’s position has not fundamentally changed, stressing that the legal and financial risks surrounding the Russian reserves remain significant.

That makes Belgium the central obstacle to any new agreement.

European pressure is growing

Nevertheless, a new coalition is attempting to revive the discussion.

Sweden, Poland, Spain and the Netherlands have urged EU officials to commission new technical work examining how the funds could be mobilised while distributing the risks across the entire bloc.

The countries deliberately represent different parts of Europe, indicating an effort to demonstrate that the proposal is not simply a demand from states bordering Russia.

Their argument is increasingly economic as well as strategic.

European governments face their own fiscal constraints, while several major EU countries will enter sensitive electoral periods in 2027. Political leaders therefore have an incentive to find financing mechanisms for Ukraine that minimise further direct demands on national taxpayers.

Swedish Foreign Minister Maria Malmer Stenergard has argued that using Russian assets is ultimately the fairest solution because it shifts the burden away from European citizens and towards Moscow.

Ukraine strongly supports that position.

Marchenko said Kyiv wants a broader coalition of EU states to reopen the discussion and regards frozen Russian reserves as an essential potential source of long-term financing.

Existing support may not be enough

The renewed debate also reflects concerns about whether existing European financing will be sufficient.

EU governments previously approved an extraordinary €90 billion support loan designed to cover Ukraine’s financial requirements during 2026 and 2027.

The programme was expected to provide roughly €45 billion annually.

But Ukraine’s rapidly expanding defence expenditure has raised doubts about whether the package can stretch across the entire period as originally envisaged.

Russian missile and drone attacks have forced Kyiv to spend heavily on air defence and infrastructure protection, while the Ukrainian military is simultaneously trying to increase the scale and technological sophistication of its own long-range strike capabilities.

The government is also funding mobilisation, salaries, ammunition procurement and domestic weapons production.

Those pressures have changed the calculations made when European financial packages were originally designed.

Meanwhile, Ukraine is continuing negotiations with the International Monetary Fund and the EU over additional financing and fiscal reforms.

The Ukrainian parliament this week failed to approve legislation introducing taxes on imported parcels — a measure connected to broader reform commitments tied to billions of euros in potential IMF and European financing.

The setback highlighted how difficult it has become for Kyiv to increase domestic revenues while the population is already carrying the economic burden of more than four years of war.

A question with consequences far beyond Ukraine

The dispute over Russian reserves is not merely about funding Kyiv.

It touches on fundamental questions about sovereign immunity, the stability of the international financial system and the credibility of reserve currencies.

Some governments fear that confiscating central-bank assets could encourage countries that have tense relations with Western governments to reduce their holdings of euros or dollars.

Others argue that Russia’s invasion represents an exceptional circumstance and that allowing Moscow to recover the reserves after the war without paying for Ukraine’s destruction would itself undermine international law.

There is also the question of precedent.

If Western governments establish a mechanism to use one country’s sovereign reserves to compensate another, the decision could influence future sanctions regimes and financial disputes far beyond Europe.

That is one reason Brussels has moved cautiously.

Kyiv’s calculation is simpler

From Ukraine’s perspective, however, the strategic logic is increasingly compelling.

The country needs tens of billions of dollars every year simply to keep the government functioning while financing a large-scale war.

At the same time, approximately €210 billion belonging to the Russian central bank remains immobilised inside the European financial system.

Kyiv therefore argues that those reserves represent one of the few sources of financing large enough to provide long-term support without forcing allies to repeatedly approve enormous new packages from their own budgets.

The political battle will now centre on whether Europe can construct a legal mechanism capable of overcoming Belgium’s concerns while satisfying governments demanding that Russia shoulder more of the financial cost of the war.

For Ukraine, the question is becoming increasingly urgent.

As its budget deficit expands and military expenditure continues to rise, the frozen Russian reserves are no longer viewed simply as a potential source of post-war reparations.

They are increasingly being treated as a possible financial lifeline for the war itself.