Financial aid for Ukraine is getting harder to find

European leaders meet next month to discuss ways to help Ukraine fill a projected €70 billion budget deficit. But their capacity for direct aid is constrained by efforts to rearm their own militaries amid a challenging economic environment, while Belgium continues to oppose the conversion of frozen Russian assets into a loan. 

Western financial aid—€170 billion ($189.5 billion) since 2022—has been key to helping Kyiv stay financially afloat since Russia's wider invasion, according to the Kiel Institute. But the U.S. has drastically cut aid under the second Trump administration, leaving the European Union, Canada, Japan, Norway, and the United Kingdom to shoulder most of the burden. 

Earlier this year, the EU approved a plan to lend Ukraine €90 billion to Ukraine through 2027, two-thirds of which will go to buy weapons and the rest to budgetary support. Around €14 billion has been disbursed to date, and by year's end that figure should grow to €45 billion.

But Russian attacks on critical infrastructure and other stresses mean that Kyiv is still looking at a budget deficit of around €70 billion for 2027. 

European governments are spending more on their own defenses. In 2021, the defense budgets of NATO's European members averaged around 1.6 percent of GDP, below NATO’s then-target of 2 percent. The alliance has since boosted its goal to 2.5 percent of GDP, and at last year's summit, committed to raising ‘core’ defense expenditure to 3.5 percent  over the next decade.

At the same time, they are facing rising debt and slowing economies. Eurozone countries have an average debt-to-GDP ratio of nearly 89 percent, and nearly 83 percent in EU nations generally. Buffeted by the trade wars and energy shocks of the Trump administration, eurozone economies will grow only 1.1 percent in 2026, according to a recent projection by the International Monetary Fund. Some northern EU members 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 raised interest rates at its June and September meetings, and is expected to deliver another hike at one of the year's two remaining meetings. Rising prices may force the ECB to continue tightening policy, raising debt-service payments from government budgets. 

Supporting Ukraine remains broadly popular in the EU, but the challenging economic environment makes it a tough sell for governments to increase aid to Ukraine along with 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

EU 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 to Kyiv. 

After Russia's February 2022 invasion, the G7 froze 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 EU has begun to use the interest income on those securities to help Ukraine, on the grounds that Russia, as aggressor, should pay for the damage caused to Ukraine. That has generated about €8 billion, 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. 

But the politics around seizing the Russian assets have barely budged. 

Belgium is the custodian of much of those Russian funds, which are housed in the Brussels-based Euroclear. The Belgian government blocked a 2025 proposal to seize the funds, fearing that it alone would bear the legal and financial risk of seizing the funds. Earlier this year, the Bank of Russia sued Euroclear in a Russian court for the funds, 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 means Brussels 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 Oct. 21. “I am certain of that, because that is what was said.” 

As European leaders prepare for a November meeting to iron out next year's assistance to Ukraine, the EU is already pushing other partners to increase their contributions to Kyiv. 

The situation is becoming more urgent. Ukraine has largely exhausted its stockpile of interceptors, leaving its cities and energy grid vulnerable to Russian attack. The Ukrainian military intelligence agency HUR recently 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.