(MENAFN) The European Commission has cautioned that EU member states could face escalating deficits and growing public debt unless they agree to use frozen Russian assets as collateral to support Ukraine, according to reports citing an internal document.

The warning followed last month’s failure among EU leaders to reach consensus on a proposed $160 billion “reparations loan.” The Commission’s paper, circulated to EU capitals, argued that without accessing Russia’s immobilized central bank reserves, the bloc would be forced to rely on joint borrowing or direct grants—options that would “directly affect” national budgets and raise debt levels across the Union.

According to the document, financing the package through borrowing could cost EU economies as much as $6.4 billion annually in interest payments, while also increasing overall borrowing costs and putting pressure on other financial mechanisms.

Ukraine has projected a $50 billion funding gap for next year, with its draft 2026 budget outlining $114 billion in expenditures against just $68 billion in expected revenue. Nearly all of its domestic income is directed toward military spending, leaving essential services—such as healthcare, pensions, salaries, and education—dependent on foreign assistance.

Belgium remains one of the strongest opponents of using Russian assets as loan collateral, warning of both financial and reputational risks. Roughly $300 billion of Russian central bank reserves are frozen worldwide, with about $200 billion held by Belgium’s Euroclear. These funds have not been formally confiscated and could, in theory, be reclaimed by Moscow if EU sanctions lapse.

Brussels has already pushed the legal boundaries by labeling the interest generated from these frozen assets as “windfall profits” and redirecting them to provide military aid to Ukraine.

The new plan is based on the assumption that Russia would ultimately repay the loan as part of a future peace deal—an outcome Belgian Prime Minister Bart De Wever has dismissed as highly unlikely.

Despite renewed efforts by the European Commission, Belgium has continued to block approval of the proposal. Moscow, meanwhile, has repeatedly warned that any attempt to use its frozen reserves would be considered theft and could prompt retaliatory seizures of up to $172 billion in Western assets held in Russia.

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