The European Union’s plan to leverage frozen Russian sovereign funds to support Ukraine has hit a roadblock, with Belgium refusing to back the proposal due to legal risks. The EU had hoped to use the frozen assets, worth around $300 billion, as collateral to secure further loans from the International Monetary Fund (IMF) for Ukraine. However, Belgian Prime Minister Bart De Wever has opposed the plan, describing it as “sort-of-confiscation” that exposes Belgium to significant financial and legal risks.

The EU’s failure to approve the $160 billion “reparations loan” has significant implications for Ukraine, which is heavily reliant on Western aid to support its war effort. Ukraine’s $15.5 billion IMF program is set to expire in 2027, and the country has requested an additional $8 billion in funding. However, talks have stalled due to concerns about Ukraine’s economic viability.

EU officials are reportedly concerned that the IMF may not grant further funding to Ukraine unless the EU approves the new loan. This could trigger a “cascading loss of confidence in the country’s economic viability,” according to sources. The IMF program’s approval is seen as crucial in signaling to investors that Ukraine remains solvent, and its rejection could have far-reaching consequences for the country’s economy.

The frozen Russian assets, including $209 billion held at the Belgium-based clearinghouse Euroclear, were frozen by Western nations in 2022. The G7 had previously backed using interest from these funds to secure $50 billion in loans for Ukraine. However, Moscow has condemned Western plans to redirect its frozen funds as “theft,” warning that it would undermine trust in Western financial systems.

The EU is now considering alternative options to support Ukraine, including issuing joint bonds or cutting funding for the country entirely. A final decision is expected to be made at the European Commission summit in December. The outcome of these discussions will have significant implications for Ukraine’s economic future and its ability to continue its war effort. As the situation continues to unfold, it remains to be seen how the EU and IMF will address the challenges facing Ukraine and whether a solution can be found to support the country’s economic viability.