Using Russian assets to help Ukraine is looking like Europe’s least-bad option

European leaders have set a December deadline to make a decision on whether to lend Kyiv around half of the $200 billion of frozen Russian assets held in the continent over the next two years.

Belgium, where most Russian central-bank deposits are held, has led opposition to the plan, fearing legal retribution.

The European Union expects to make the call at a summit next week.

Failure to tap the assets would be devastating for Ukraine, which is counting on the funds to cover two thirds of its core budget and military needs. It would also keep the Europeans sidelined in peace talks, where Ukraine’s ability to withstand Russian attacks is Kyiv’s key point of leverage in negotiations.

Europe now picks up most of the tab for Ukraine’s defense against Russia’s invasion, after the Trump administration almost completely cut off financial assistance to Kyiv.

European leaders have pledged to continue aiding Ukraine’s war effort come what may, but other means of funding look costlier and even more politically perilous than dipping into the Russian assets.

Aside from making the $105 billion loan, the European Union has two options: raising fresh debt in financial markets, or relying on individual member countries to pony up.

Both would be more expensive to European states and Ukraine, and each would stir fresh political difficulties for EU governments that have spent roughly $230 billion on the war since Russia invaded its neighbor in 2022.

Some European officials fear that asking EU countries to make voluntary contributions for a loan to Ukraine if the Russian-asset plans fails would cause simmering tensions to boil over between those countries that have been making large contributions—including Germany, the Nordics, Poland and Baltic States—and laggards, including Italy and Spain.

Data from the Kiel Institute released Wednesday show those disparities are set to grow next year. The report also suggests Western military support for Ukraine this year will drop to its lowest point since the war began.

Discussions on the reparations loan are intensifying ahead of next week’s summit. Ukraine wouldn’t have to repay the loan if it didn’t receive Russian reparations for the war.

The loan wouldn’t show up as debt on Ukraine’s books and European governments needn’t ask taxpayers to dip into their pockets.

On Friday, European Commission President Ursula von der Leyen, who crafted the proposal, and German Chancellor Friedrich Merz, its biggest supporter, met with Belgian Prime Minister Bart de Wever and urged him to reconsider his country’s opposition.

The plan doesn’t need the backing of all 27 member states but Brussels won’t proceed without Belgium’s consent.

Antonio Costa, who chairs meetings of EU leaders, said Tuesday that if necessary he would keep leaders at the Brussels summit for three days to clinch a deal.

Despite Costa’s optimism, officials say agreement next week is far from certain. Ukraine needs to start receiving the money by spring and EU officials have said they could begin sending funds by April under the proposal.

Officially, there is an alternative option that could raise the targeted 90 billion euros. Under that path, the commission would return to financial markets to raise a loan, for which the EU budget would provide collateral. It raised $54 billion for Ukraine in early 2024 that way.

But there are massive drawbacks.

The loan would count as additional debt for Ukraine, worsening its state borrowing position. It would be significantly more expensive for EU member states, adding more than €5 billion in interest payments, according to officials in the bloc. Most important, the move requires unanimous approval, unlike the reparations loan, and Hungarian Prime Minister Viktor Orban has said he would oppose it.

That leaves only one other viable alternative, officials say: relying on member states to raise the money voluntarily. This option would increase the disparity in contributions across Europe.

As the war approaches the four-year mark, top European officials have sounded much greater alarm on how the load is shared.

“A few countries take almost all of the burden. The Nordic countries, with less than 30 million people, we provide for one-third of the military support that the NATO countries" provide, Swedish Foreign Minister Maria Malmer Stenergard said. “This is not fair and it’s not sustainable in the longer run."

New data from the Kiel Institute’s Ukraine Support Tracker shows the disparities.

While Germany has committed $14 billion for Ukraine next year, significantly increasing its already high support, and Britain and France are increasing their planned military assistance, the institute said that Italy has reduced its commitment by 15% compared with “its already low allocation levels" in 2022-24. Spain, which committed €1 billion to Ukraine this year, hasn’t recorded any assistance for next year.

The “decline of support from Spain and Italy is a notable setback, reinforcing the importance of more balanced burden-sharing across Europe," said Taro Nishikawa, project lead at the institute.

As a proportion of economic output, Sweden and Denmark are spending more than 0.06% of their prewar economic output on military aid for Ukraine, according to the latest Kiel data. Germany and Finland spend around 0.025%. France, Spain and Italy are below 0.01%.

Danish Foreign Minister Lars Lokke Rasmussen said at a North Atlantic Treaty Organization meeting last week that some allies must augment their strong words of support for Ukraine with actual spending.

“I have leaned quite heavily across the table and said that it is a really nice position, but that it must be backed up by action," he said. “We are in a difficult place right now because Ukraine needs more weapons and more money."

Write to Laurence Norman at laurence.norman@wsj.com