Ukraine’s $200 Billion lifeline from Europe stumbles on pushback in Belgium

Ukraine is on course to run out of cash in the spring, EU officials say, and they see their loan proposal as the best option for allowing Kyiv to continue buying weapons. The plan would lend as much as 183 billion euros (about $213 billion) to Ukraine, backed by Russian financial assets that are immobilized in Belgium.

Belgian officials fear that if the plan hits political or legal trouble, it could leave the country exposed to liabilities that potentially amount to the equivalent of one-third of its national economic output. Politics in Belgium, which hosts the EU’s institutions, risks adding to the problem. The governing coalition faces a budget crisis, raising the stakes for Belgian Prime Minister Bart De Wever to show he is protecting Belgian interests.

De Wever on Friday met with European Commission President Ursula von der Leyen, the EU’s top official. Both sides want a deal struck at a summit late next month, before Kyiv’s cash position deteriorates much further.

The dispute boils down to conflicting assessments of legal risk to the reparations loan. EU officials accept that risks exist but think they are low and containable. Belgian officials see substantial risk to the plan.

The proposal involves using some of the $300 billion Russian central bank assets that the EU, the U.S. and other allies immobilized after Russian leader Vladimir Putin ordered the large-scale invasion of Ukraine in 2022. Two thirds of that money was sitting Belgian financial intermediary Euroclear, a security depository holding billions in assets for its clients.

The EU plan would involve lending Ukraine money using the cash reserves that have built up at the European Central Bank as the Russian assets at Euroclear have matured.

Ukraine would only need to repay the money if Russia pays Kyiv reparations after the war. Few think that likely.

The European Commission, the EU’s executive arm, would therefore give Euroclear a contract, amounting to a promissory note, that it would make Euroclear’s balance sheet whole if it ever must repay Russia. EU countries would guarantee that the commission has resources for a potential repayment.

Euroclear, for its part, would only need to settle with Russia if Western sanctions on its assets are lifted. Pending that, the Ukraine loan could roll over in perpetuity and not be considered Ukraine’s debt.

The legality of using the immobilized assets has been among the most contested financial questions of the Ukraine war. European capitals for more than two years resisted the unprecedented step of handing a country’s assets over to its opponent.

For the EU plan to go ahead, Belgian officials want guarantees from other EU states that cash would immediately be available to Euroclear if it is forced to return the assets to Russia. They fear that could happen if the commission’s proposal is found to be illegal, or if the U.S. and Russia strike a peace deal that requires Euroclear to repay the money.

If Euroclear can’t cover its liabilities, De Wever, the Belgian prime minister, warns the company could quickly lose market confidence, risking an exodus of assets and a potential market crisis.

Belgium’s government fears Moscow could formally confiscate assets of Belgian companies that have been trapped in Russia since 2022. They fear that Russia or its courts could take control of Euroclear assets held there and push Russia-friendly countries to go after Euroclear assets elsewhere.

People involved in the talks said that Euroclear has exposure of €17 billion of assets in Russia.

A Euroclear spokesman said the firm would continue discussions with decision makers.

“Any proposal should respect international law and internationally accepted legal principles underpinning Western economies and protect the interests of Euroclear and its stakeholders," he said.

De Wever wants the EU plan to expand to include support from non-EU countries, potentially including the U.S., U.K and Japan. His proposal echoes concerns voiced by European Central Bank President Christine Lagarde that the EU plan could damage confidence in euro-denominated assets if the Euroclear assets were taken without the U.S., the U.K. and Japan copying suit.

The Group of Seven large advanced nations continues discussing the use of the assets, and British and Canadian officials have signaled they also might turn the money over to Ukraine. Neither Washington nor Tokyo has said it would.

“The fattest chicken is in Belgium but there are other chickens around," De Wever said last month.

The EU is considering other ways to raise money, such as member states agreeing to raise a loan to support Ukraine. But such an approach would almost certainly require the agreement of all the countries, including Hungary, which has refused to back fresh EU loans for Ukraine.

“There are alternatives, but they are much less attractive because they are more costly for everyone," said Nicolas Véron, senior fellow at Belgian-based think tank, Bruegel.

Write to Laurence Norman at laurence.norman@wsj.com and Kim Mackrael at kim.mackrael@wsj.com