(MENAFN) European Union nations confront spiraling deficits and mounting debt unless they authorize using immobilized Russian funds as collateral for Ukraine financing, the European Commission cautioned in confidential documents obtained by media.

The internal paper circulated among EU capitals after member states failed last month to reach consensus on a 'reparations loan' worth approximately €140 billion ($160 billion), media disclosed Friday.

Without accessing the frozen Russian central bank holdings, the EU must either greenlight collective borrowing or distribute direct grants—both approaches would "directly affect" member state budgets and escalate public debt, commission officials warned. Whether rejecting Ukraine funding altogether was even explored remains undisclosed.

The financial burden looms large, with servicing a joint loan of that magnitude potentially generating up to €5.6 billion in yearly interest charges. Commission analysts cautioned that borrowing at this scale could simultaneously inflate broader EU borrowing expenses and destabilize existing financial mechanisms.

Kyiv anticipates Western allies will cover a nearly $50 billion shortfall next year, with its 2026 draft budget projecting roughly $114 billion in expenditures against only $68 billion in revenue—nearly all designated for military operations. Most civilian government costs, including salaries, pensions, healthcare, and education, depend entirely on external assistance.

Belgium maintains opposition to leveraging Russian assets as loan security, highlighting grave financial and reputational hazards. The immobilized funds, totaling approximately $300 billion worldwide, with roughly $200 billion held at Belgium's Euroclear, remain technically unseized and recoverable by Russia should EU sanctions lapse without renewal.

The EU has already expanded legal interpretations by categorizing interest accrued on frozen assets as windfall profits divorced from Russian ownership, redirecting them to arm Kyiv.

The proposed framework assumes Russia will ultimately repay the loan during future peace negotiations—an outcome Belgian Prime Minister Bart De Wever has characterized as improbable. Friday witnessed EU Commission officials again failing to secure Belgian support for asset appropriation.

Moscow has declared it would consider any utilization of its frozen assets as theft, threatening retaliatory seizure of €200 billion in Western assets held in Russia by foreign governments and corporations.

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