EU will be ‘severely damaged for years’ if assets plan fails, says Germany’s Merz

BERLIN — German Chancellor Friedrich Merz warned on Monday that the European Union would be “severely damaged for years” if the bloc's 27 leaders failed to agree on a multi-billion-euro loan to keep Kyiv afloat at a summit in Brussels this week. 

Merz is leading the push for a lifeline loan to Kyiv that uses frozen Russian central bank assets in Europe — the vast majority of them in Belgium. The big fear in Brussels is that Moscow and Washington will exploit divisions between the 27 member countries to prevent an agreement on rescuing Ukraine at Thursday’s European Council.  

“Let us not deceive ourselves. If we do not succeed in this, the European Union's ability to act will be severely damaged for years, if not for a longer period,” Merz said in view of the €210 billion loan backed by Russian frozen assets in Berlin on Monday. “And we will show the world that, at such a crucial moment in our history, we are incapable of standing together and acting to defend our own political order on this European continent.” 

Merz spoke as Ukrainian President Volodymyr Zelenskyy, envoys from U.S. President Donald Trump and European leaders convened in Berlin to discuss a plan to end the war in Ukraine.

The question of security guarantees for Ukraine stand at the center of the negotiations. Significant steps towards these were made during the meeting in Berlin, Zelenskyy and Merz said during a joint press conference after talks with the U.S. delegation, adding that Washington was considering giving Ukraine guarantees for a future peace deal that correspond to similar levels of security as members of the NATO alliance. 

Earlier on Monday, as Zelenskyy met with the president of the German Bundestag, a mysterious power outage occurred at around the same time he arrived, according to several people familiar with the matter.

The outage was confirmed by the Bundestag administration and lasted at least two hours, but when asked about a cyberattack the IT staff could not explain the disruption.

Bleak outlook

Merz’s grim prognosis for the EU in case of a failure at this week’s summit followed remarks from top EU diplomat Kaja Kallas that the asset-based loan now looked “increasingly difficult.”

Merz insists that using Russia's frozen assets is the only credible way for Europe to keep Ukraine solvent next year.

But in the run-up to the summit in Brussels, fears are growing that the push could be derailed by opposition from EU states who are under pressure from both Russia and the United States.

While Belgian Prime Minister Bart De Wever has mentioned threats from Russia if Brussels seizes the assets — and Moscow has already taken steps to sue the Belgian bank where most of the cash is held — two senior European officials involved with the loan effort said the U.S. was also pressuring EU states to go against the scheme.

“The Americans are not only demanding that Ukraine cede territories Russia did not manage to take, but are also pushing several European countries not to give Ukraine a €210 billion reparations loan,” said one of the senior European officials.

According to a leaked U.S.-Russia draft peace plan, Washington intends to direct part of the assets toward U.S.-led reconstruction efforts. The same European officials said the U.S. had not dropped its basic opposition to Europe using the assets to help Ukraine.

Merz has already insisted that the Russian assets should not be transferred to America's economic advantage.

Speaking on her way into a gathering of foreign ministers in Brussels, Kallas noted “significant pressure from all sides” over the reparations loan, which she called the “most credible option” to keep Kyiv financially afloat from next year.

“This [reparations loan] is what we’re working on. We are not there yet and it is increasingly difficult, but we’re doing the work and we still have some days,” she said.

Belgium has long opposed using Russia's frozen assets to help Ukraine, arguing it would imperil the peace process and expose Brussels to legal retaliation from Russia.

In recent days Italy, Bulgaria and Malta have come out against the scheme, while Hungary and Slovakia have previously voiced opposition. Over the weekend Czechia's newly-installed Prime Minister Andrej Babiš came out against the loan, saying Prague would not provide any financial guarantees to back up Belgium.

The EU doesn't need unanimous backing to tap the assets following a decision last week to use emergency powers to immobilize the assets indefinitely. A vote by qualified majority could still pass even if all seven countries cited above oppose it, given that a blocking minority requires 35 percent of the EU's population. 

But Kallas said that it would “not be easy” to override Belgium, given that the bulk of the assets are in the country. “I think it's important that they are on board with whatever we do.”