The IMF estimates Ukraine’s financing gap for 2026–2027 at about $63 billion, but this is based on an optimistic 4.5% growth forecast for this year, much higher than the market consensus. The €90 billion looks sufficient to cover a greater gap, though. Besides, more previously committed funds will come from other sources as well as likely from the new IMF program.

The loan is designed to be debt-neutral for Ukraine as it is supposed to be repaid only once the country receives reparations from Russia. Until then, the Russian assets will remain frozen, and the EU will reserve the right to use them to repay the loan. To fund the loan, the EU will borrow on capital markets. The disbursing of tranches will be conditional on rule-of-law and anti-corruption benchmarks, and is expected to start in the second quarter of this year.

This enables the IMF in the coming months to approve a new $8 billion Extended Fund Facility (2026–2029) and ensures the continuity of international financial assistance. Put simply, Ukraine will not run out of money.

However, there is a consequential political choice embedded in the EU loan—namely, what it avoids. The Russian frozen assets, largely held at Euroclear in Belgium, generate €3–5 billion annually and this finances the G7’s €45 billion Extraordinary Revenue Acceleration for Ukraine mechanism, but the principal remains untouched.

Sustainability Is Not Victory

Ukraine’s annual defense expenditure has not changed substantially since 2022, reaching €60 billion last year, while Russia’s spending stands at about €130 billion annually. The defense budget boost since 2022 has allowed Ukraine to keep fighting but it does not alter the battlefield balance or convince Russia that time is not on its side. For the fifth consecutive year, it is a survival budget: sufficient to slow Russia’s advance but insufficient to enable a decisive Ukrainian breakthrough.

Currently at approximately 43% that of Russia’s, Ukraine’s military budget needs to be significantly increased. Even using up the €60 billion account for buying arms and developing defense-industrial capacity over the next two years will not be enough for winning the war—and it is significantly less than the amount in Russian frozen assets.

They interpret the EU’s caution not as prudence about the legality of using the assets but as fear of retaliation by Moscow.

Recent remarks by Russian officials show that they see the decision regarding the frozen assets as evidence of unwillingness to impose economic punishment on Russia. They interpret the EUs’ caution not as prudence about the legality of using the assets but as fear of retaliation by Moscow.

The EU’s decision has to be seen also against the changing transatlantic backdrop. The discussions in Washington about using the frozen assets risk reframing them from instruments of accountability to a sweetener for Moscow as part of a negotiated peace settlement. Effectively that would be offering Russia financial relief in exchange for a ceasefire.

What is more, as an analysisby the German Marshall Fund of the United States has highlighted, US support for Ukraine is entering a more conditional phase, shaped by domestic politics, the gap between Congress and the White House on European security issues, and defense-industrial constraints. And an abrupt withdrawal of US support to the global security architecture remains very much on the table.

Europe as a Prey or a Power

The EU’s lack of strategic decisiveness and constant “too little, too late” raising of the ceiling to its support for Ukraine invites pressure from Russia. This gives opportunities for Moscow to impact the EU’s internal and external affairs. To avoid being seen as a prey rather than a power by other global actors, the EU needs to align its financial support with the goal of tilting the military balance in Kyiv’s favor. Ukraine’s €60 billion annual defense expenditure should be at least doubled to the level of the Russian war budget.

The problem is not capacity. Matching Russia’s war effort financially would amount to less than 1% of the EU’s approximately €17 trillion GDP. The problem is how the EU can now do this, having avoided the challenge in its loan and since it looks like there is for now no prospect of using Russia’s frozen assets for funding Ukraine’s military capacity for. Yet it must find a way because financing Ukraine’s survival without enabling its victory will prolong the war at a higher cumulative cost for the EU—financially, politically, and militarily.

Source: German Marshall Fund (GMF).