The Gordian Knot of Ukraine and Europe’s Quagmire

TEHRAN (Iran News) The purpose of this loan is to meet Ukraine’s needs for the years 2026 and 2027, and it will be paid in the form of covering military and budgetary expenses (such as ammunition and reconstruction).

Ukraine is obliged to repay the loan only if Russia pays war reparations. Otherwise, the European Union had reserved for itself the right to use frozen Russian assets to compensate for the loan. This option, however, was vetoed by Belgium, which is the custodian of Russia’s frozen assets.

The initial proposal to use Russian assets was put forward by London, but due to Belgium’s opposition (since most of these assets are held there) and legal and security concerns, it was abandoned. In other words, Belgium was unwilling to take the risk of openly antagonizing Russia and, in the event of changing circumstances, to be obliged to compensate Russia for the use of those assets.

Therefore, this loan will not be financed from frozen Russian assets, but rather through borrowing by the European Union from capital markets.

In addition, Hungary, Slovakia, and the Czech Republic initially opposed the loan package. Eventually, they agreed to it only after being exempted from any financial obligations.

Thus, up to this point, the remaining EU member states have committed to financing the loan.

Volodymyr Zelensky, the imposed and now time-expired president of Ukraine, has described this loan as guaranteeing “financial certainty for the coming years.” This is despite the fact that he had requested $160 billion, but ultimately agreed to a $106 billion package.

In response to the lack of US support for this plan, leaders such as the German chancellor and the French president described the decision as a major, practical step and a sign of Europe’s continued support for Ukraine. They warned that Ukraine is facing a severe liquidity shortage. The International Monetary Fund estimates that the country will need €137 billion ($161 billion) for the years 2026 and 2027. Without this assistance, the Ukrainian government would have been on the brink of absolute bankruptcy by spring 2026.

Under these circumstances, overall, this $106 billion loan is an emergency financial measure by the European Union to prevent Ukraine’s bankruptcy and to support its military and economic efforts over the next two years. However, this agreement was the result of a complex political bargaining process in which the EU, instead of the bolder plan of using Russian assets, chose the more traditional method of borrowing in order to preserve its unity and to put on a show of strength in response to Trump’s withdrawal.

Nevertheless, it is quite clear that this loan will, on the whole, do little to solve Ukraine’s problems and will instead draw Europe deeper into the Ukrainian quagmire. This is because Russia has fully adapted to this war of attrition and, through various measures, has pushed the United States out of the scene, further separated Europe from NATO, and made the Ukrainian knot even tighter.