When European leaders meet next month to debate further assistance to Ukraine, they will be confronted with a looming €70 billion hole in Kyiv’s finances and few good options to fill it. The need to rearm their own militaries, paired with a challenging economic environment, has strained the room for further assistance to Ukraine, while Belgium continues to oppose the conversion of frozen Russian assets into a loan.
Beyond developments on the battlefield, a key element of Ukraine’s defense is its ability to manage its finances. Kyiv’s Western partners have been crucial in helping the country plug its budget deficit, allocating over €170 billion ($189.5 billion) in financial support to Ukraine since 2022, according to the Kiel Institute.
With the U.S. curtailing aid to Ukraine under the second Trump administration, much of the assistance burden is now being shouldered by the European Union, along with Canada, Japan, Norway, and the United Kingdom.
Earlier in 2026, the E.U. approved a two-year loan plan that will provide a total of €90 billion to Ukraine over 2026 and 2027, of which €60 billion is for use on arms procurement and €30 billion is for budgetary support. Around €14 billion has been disbursed to date, and by year-end that figure should grow to €45 billion. The second half of the loan will be disbursed next year, but Ukraine’s rising needs – especially in the wake of Russian attacks on its critical infrastructure – mean that there is still a gap of around €70 billion for 2027.
European Fiscal Squeeze
So where might Europe get the remaining funds that Kyiv is seeking?
E.U. members themselves are squeezed. Concerns about Moscow’s long-term intentions in Europe and Washington’s reliability have spurred European capitals to get serious about their defense postures, driving an upswing in military expenditure.
In 2021, on the eve of Russia’s invasion of Ukraine, average NATO European defense spending stood at around 1.6 percent of GDP, well below NATO’s target at the time of 2.0 percent. That figure has now risen to 2.5 percent of GDP, as the value of European defense spending has roughly doubled. At the Alliance’s 2025 summit, NATO committed to raising ‘core’ defense expenditure to 3.5 percent of GDP over the next decade.
At the same time, the E.U. as a whole is facing rising debt burdens and slowing economies. Eurozone countries have an average debt-to-GDP ratio of nearly 89 percent, while in the E.U. generally, that figure stands at close to 83 percent. Buffeted by trade wars and the Iran-related energy price shock, eurozone economies will grow only 1.1 percent in 2026, the International Monetary Fund projected earlier in October. The situation is not uniform, as some northern members of the E.U. are in much better fiscal shape than their southern and western counterparts.
The budget picture is getting cloudier. Annual inflation in the eurozone rose to 3.8 percent in September, according to Eurostat, well above the European Central Bank (ECB) target of 2 percent. The ECB has already raised interest rates twice in 2026, at the June and September meetings, and is expected to deliver another hike at one of the two remaining meetings before the end of the year. Rising prices may force the ECB to continue tightening policy, raising debt service payments from government budgets.
Supporting Ukraine remains broadly popular in the E.U., but the challenging economic environment makes it a tough sell for governments to significantly increase aid to Ukraine while also ramping up their own defense spending. European governments are already facing domestic criticism over rearmament. Italy, for example, was approved for an allocation of up to €14.9 billion from the E.U.’s Security Action for Europe (SAFE) loan facility, meant to aid rearmament. Yet Rome requested only about €8 billion from SAFE, as Prime Minister Giorgia Meloni’s government sparred with critics within her own coalition and in the opposition on financing more defense spending with debt.
Frozen Russian Assets
E.U. countries are thus once again looking at alternative methods of backstopping Ukraine’s budget. One of the most obvious options is the conversion of frozen Russian financial assets into a loan.
In 2022, following Russia’s invasion of Ukraine, the G7 took steps to freeze Russian government securities held abroad. As much as $300 billion was impounded as a result and remains in limbo to this day, including about €210 billion held in the European financial system.
While the principal has remained untouched, the E.U. has gradually taken steps to utilize the interest income on those securities for assistance to Ukraine, on the grounds that Russia, as aggressor, should pay for the damage caused to Ukraine. That process has generated about €8 billion in windfall profits, of which €3.8 billion has been delivered to Ukraine, and €4.2 billion has been reserved to repay E.U. or G7 loans to Ukraine.
In September, Germany and other E.U. members revived the topic of converting the Russian assets into a loan for Kyiv, POLITICO reported. Berlin views the step as a ‘win-win’ for the E.U., enabling the bloc to help Kyiv address its financial needs, while replacing some of the funds that would be reserved for Ukraine in the E.U.’s upcoming multi-year budget.
The politics around seizing the Russian assets, however, have hardly changed, meaning this route likely faces a dead-end.
Belgium is the custodian of much of those Russian funds, which are housed in the Brussels-based Euroclear, and the Belgian government fears that it would bear the legal and financial risk alone. Earlier in 2026, the Bank of Russia filed a lawsuit in Moscow demanding the release of the funds from Euroclear, arguing that they were illegally seized. The court backed the Russian central bank’s challenge in a ruling two months later, though it lacks jurisdiction to enforce the judgment.
Concern over the legal risks resulted in Belgium blocking the previous attempt to repurpose Russia’s frozen assets in 2025, and will likely stymie the proposal again.
“I am certain that the European Commission will not make proposals to meet Ukraine’s financing needs through a new operation linked to Russian assets,” Belgian Prime Minister Bart de Wever told reporters on October 21. “I am certain of that, because that is what was said.”
Rising Urgency as the War Enters Its Sixth Year
European leaders are due to meet toward the end of November to iron out assistance to Ukraine for next year. Ahead of this summit, the E.U. is also looking to push other partners to increase their contributions to Kyiv. Unless additional funding can be found, from either new aid commitments or a change of policy on the frozen Russian assets, Ukraine will enter the new year with a sizable financial gap.
The situation is meanwhile becoming more urgent. Ukraine has largely exhausted its stockpile of air-defense interceptors, leaving its cities and energy grid vulnerable to Russian missile attacks. Earlier in October, Ukrainian military intelligence agency HUR estimated that Russia can produce 10,000 long-range strike drones and decoys each month. Mounting damage increases Ukraine’s financial needs, as the country scrambles to keep the lights on.
In February, the war will enter its sixth year with no resolution in sight. The longer the conflict lasts, the more its outcome will hinge on financing as much as firepower.
Military markets analyst, covering Eurasia, Middle East, and Africa.
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