EU leaders face crunch decision on using frozen Russian assets for Ukraine

By Jan Strupczewski ‌and Andrew Gray

BRUSSELS, Dec 18 (Reuters) - European Union leaders will try to agree on how to lend billions of euros of desperately needed cash to Ukraine in ‍a meeting on ‌Thursday that is seen as a critical test of the group's strength in the wake of U.S. President Donald Trump calling them weak.

The EU sees Russia's war ⁠as a threat to its own security and wants to keep Ukraine financed and ‌fighting.

The European Commission has proposed using frozen Russian central bank assets that are mostly held in a Belgian clearing house to secure a huge loan to Kyiv, but Belgium is concerned the plan is not legally watertight while other states including Italy have expressed concern.

EU officials and diplomats agree they must find a solution at the summit.

Belgian Prime Minister Bart De Wever told his country's parliament early ⁠on Thursday that he had not yet seen guarantees that answered his concerns on legal and liquidity risks and that financing plans were still changing "as we speak".

Russia's central bank has said the EU plans to use ​its assets are illegal and reserved the right to use all available means to protect its interests. ‌It filed a lawsuit in Moscow this week seeking $230 billion in damages from ⁠clearing house Euroclear.

The stakes are high because without the EU's financial help Ukraine will run out of money in the second quarter of next year and most likely lose the war to Russia, which the EU fears would bring closer the threat of Russian aggression against the EU.

"If we do not find an answer to ​that question (of how to finance Ukraine in 2026 and 2027), we will not enable Ukraine to defend itself," a senior EU diplomat said. "That would have severe implications ... for the security of the rest of Europe."

"It would also have severe implications for the credibility of Europe and underline that we are as weak as Trump apparently thinks we are," the diplomat said.

REPARATIONS LOAN IS "ONLY GAME IN TOWN"

One of the financing options could be for the EU to borrow the needed amount against the security of the EU ​budget and then ‍lend the money on to Ukraine, but such a ​move would require unanimity among the 27 EU countries and Moscow-friendly Hungary has already said it would veto it.

Another option would be for each willing EU country itself to raise money on the market and pass it on to Kyiv, but that would mean a rise in the already high debt and deficit levels and a lack of longer-term financing certainty for Ukraine.

Diplomats said the use of the Russian assets was therefore in practice "the only game in town" and favoured by most countries because it ensured a large sum for Ukraine without increasing national debts or any immediate fiscal effort.

But to use it, EU leaders first need to convince Belgium, which holds 185 billion euros of the total 210 ⁠billion euros frozen in Europe, that they will not leave it alone with the bill if Russia successfully sues in international courts over the plan.

Most EU countries are willing to give such guarantees. But De Wever has argued that because damages awarded ​to Russia in a successful court case could far exceed the amount held by Belgium and the trial could take place many years from now, he effectively needs a blank cheque from other governments for an indefinite period.

The discussions among leaders on Thursday will therefore focus on narrowing down the scope of the guarantees to a form that would also be acceptable to other EU countries, diplomats said, stressing a financing solution for Ukraine will be found.

"This is ‌not a European Council where we can part ways on Friday and not have anything," a third senior EU diplomat said.

"So a solution will be available on Friday morning."

(Additional reporting by Lili Bayer, Phil Blenkinsop and Julia Payne in Brussels, John Irish in Paris, Andreas Rinke in Berlin, writing by Jan strupczewski and Ingrid Melander; editing by Deepa Babington)