• German Chancellor Friedrich Merz called for a €140 billion interest-free loan to Ukraine using frozen Russian assets. 
• Belgium forced a change of plans, resulting in a €90 billion debt-financed loan, while Hungary caused months of delay, with the first payment released on 25 June 2026. 
• The loan covers Ukraine’s funding needs for 2026 and partly 2027, with Russian assets staying frozen indefinitely, leaving their future purpose unresolved.

Why is Merz MILD?

Answer: Merz’s initial plan of a €140 billion loan to Ukraine failed, but he managed to secure an alternative form of assistance while keeping Russian assets frozen.

On 25 September 2025, German Chancellor Friedrich Merz called on the European Union, in a Financial Times op-ed, for a €140 billion interest-free reparations loan to Ukraine, using immobilised Russian assets. The loan would only be repaid once Russia had compensated Ukraine for the damage caused during the war. Merz designed the plan to use the assets without confiscating them, in view of the legal and financial risks.

On 18 December 2025, the European Council agreed an alternative: a €90 billion loan funded through common EU debt and backed by the EU budget. The first instalment was disbursed on 25 June 2026. Conditions of repayment remain the same, with the difference that Russian assets remain frozen and the EU reserves the right to use them to repay the loan.

Merz could not implement his original plan but secured an interest-free alternative on the same repayment terms, funded by the joint EU borrowing he had long opposed, leaving him MILD.

What is changing Merz’s heat level?

Answer: Veto players forced a change of plan and months of delay, while domestic support of the initial plan did not translate into greater popularity for Merz.

Belgian Prime Minister Bart De Wever, whose country holds most of the frozen Russian assets, called the reparations loan “fundamentally wrong”. He would only consider it with a mutualisation of risks, an effective liquidity guarantee and a total burden-sharing by countries that hold Russian assets. Euroclear, the Brussels-based depository holding the assets, had already been sued by Moscow. 

Italy, Bulgaria and Malta raised reservations about Merz’s initial plan, while Czechia, Hungary and Slovakia refused to contribute. The European Council eventually reached unanimity on the €90 billion alternative by exempting Hungary, Slovakia and Czechia from any financial obligations. Hungary’s then prime minister, Viktor Orbán, still blocked a final amendment to the EU budget for months, until he lost the April 2026 election. The first payment was only released on 25 June 2026.

According to YouGov, 55% of German citizens favoured the use of frozen Russian assets as an assistance tool to Ukraine, and 56% in general agreed to support Ukraine with financial aid. Merz himself has not been popular and even after the introduction of his plan, his approval rate was decreasing from 45% in October 2025 to 18% in October 2026. Majority support for the initial plan did not translate into higher approval for Merz, whose ratings reflect wider concerns about the economy and a perception that he is out of touch with voters’ problems. Veto players reshaped and delayed the policy without stopping it, while public support did not lift Merz’s own ratings.

What is driving Merz?

Answer: Merz is driven by the ambition to lead Europe’s response to Russia, make Moscow pay for the war, and stop Germany from carrying the cost alone.

Merz wants to set up Europe’s own agenda instead of solely reacting to Russia’s. He positioned himself as a guiding figure regarding Ukraine’s assistance, by writing an op-ed with the proposal of a €140 billion loan. With France taking a lower profile regarding the assistance loans, Merz was seen as taking the lead together with European Commission President Ursula von der Leyen. His original proposal was set aside in favour of the alternative plan, which was backed by Belgium and European Council President António Costa. 

Merz also stated in his op-ed his goals of raising the costs of Russia’s aggression, supporting Ukraine for as long as it takes, strengthening and expanding the European defence industry, avoiding legal risks and euro-reserve risks, and avoiding Germany carrying the aid alone. 

Russian assets stay frozen, which keeps the pressure and limits Russia’s financial capacity. A financing plan for 2026 and 2027 has been established for Ukraine, and €60 billion of the loan goes towards its defence capacity. Ukraine is required to buy weapons and ammunition from European producers where possible, strengthening the European defence industry.

Leaving the assets untouched also avoided risks to the euro’s reserve status and potential breaches of international law. Germany does not have to finance the aid alone but is now sharing the total associated costs of the loan, estimated at €2 billion to €3 billion per year, among 24 participating states, but at the cost of joint EU debt, which Merz had long argued against.

What does this mean for you?

Answer: Merz’s compromise keeps Ukraine funded until 2027 but leaves the question of Russia’s assets open and sets a precedent for joint EU borrowing.

The €90 billion loan covers two-thirds of Ukraine’s external financing needs for the years 2026 and 2027. For 2026, the remaining third has been covered by other international partners, which leaves 2027 still uncovered. The IMF estimates a funding gap of $30 billion to $35 billion for 2027. Merz has announced further German aid on top of the loan. On 4 October 2026, he announced €1 billion in military aid and €350 million for repairing energy infrastructure. On 3 November 2026, Merz made another statement on continuing aid and supporting Ukraine throughout the winter. 

The deal also sets a precedent: the EU has now used joint borrowing to fund Ukraine, a step Merz long opposed, which could make it easier to use again, for example for defense. 

On 12 December 2025, EU member states used Article 122 of the Treaty on the Functioning of the European Union to keep the assets immobilised indefinitely. Additionally, the EU reserves the right to use them to repay the loan, in accordance with EU and international law. 

Freezing the assets indefinitely keeps open the possibility of using them in the future, with discussions ongoing. Euroclear and Belgium remain the largest stakeholders, along with being exposed to the greatest risk. Therefore, the use of the assets has been postponed rather than solved, as long as Ukraine is in need of aid.