The Right Way to Finance Ukraine’s Defense

By Vladyslav Rashkovan and Greg Wilson

WASHINGTON, DC – Rarely do Western political leaders impress us with decisive resolve in the face of geopolitical problems. Their more typical response is to express deep concerns without mustering the courage to intervene and minimize their costs.

But there have been exceptions. On a few occasions in modern history, Western leaders truly proved equal to the moment. One example was in March 2022, when Western governments intervened decisively to immobilize most Russian sovereign assets (RSAs) held outside Russia. An estimated $300 billion (€260 billion) was frozen, with the bulk of it in the European Union, primarily Belgium (Euroclear). Those funds have remained frozen in all affected countries, and thanks to bipartisan congressional leadership in the United States, the president is authorized to seize, confiscate, and transfer all Russian sovereign assets within US jurisdiction to aid Ukraine.

Western leaders then impressed us again at the G7 Leaders’ Summit in June 2024, when they agreed to provide a $50 billion extraordinary revenue acceleration (ERA) loan based on the revenue generated over time by the underlying frozen Russian assets. This breakthrough featured a series of national commitments and guarantees, not least from the US, which helped spearhead the effort.

Today, most of the ERA funds have been disbursed to Ukraine, which has deployed them in support of an economy devastated by the exogenous shock of Russian aggression. As of early October 2025, they constituted the country’s third-largest source of external financing, behind only the EU and the US. But despite these efforts, the war rages on, and Ukraine urgently needs tens of billions of dollars more to defend against relentless Russian attacks, and to underwrite its economic survival.

Back in 2022, Ukrainian President Volodymyr Zelensky suggested that the war had echoes of the Manichean struggle depicted in Star Wars. Ultimately, he declared, “the light will win over darkness.” Fast forward to September 2025, and US President Donald Trump seemed to agree that with the support of Europe, the Ukrainians can indeed “fight and win all of Ukraine back in its original form.”

Yet Ukraine cannot achieve this victory without immediate, large-scale financial assistance from its Western allies. As Chrystia Freeland, Canada’s former deputy prime minister and current representative for Ukrainian reconstruction, recently argued, the West “needs to work with Ukraine today, to support it and its war economy, and to lay the foundations for its future prosperity.”

So, Western leaders again have an opportunity to act decisively. The frozen Russian assets can support Ukraine’s military and economic needs even without full legal confiscation. In fact, the first steps in this direction have already been taken. In her State of Europe address last month, European Commission President Ursula von der Leyen called for immobilized cash sitting in Euroclear – approximately €175 billion – to be made immediately available to Ukraine through a reparations loan, in conjunction with the country’s next International Monetary Fund program.

For his part, German Chancellor Friedrich Merz recently voiced support for a similar approach, proposing “an interest-free loan” secured by the frozen Russian assets, to “be repaid only once Russia has compensated Ukraine for the damage it has caused during this war.” These newly mobilized funds, he stressed, would be sufficient to “finance Ukraine’s defense capabilities for several years.”

Moreover, European Council President Antonio Costa, High Representative Kaja Kallas, and Finnish Prime Minister Petteri Orpo have all endorsed this idea in the name of defending international law and norms. And during their recent virtual meeting in Ottawa, the G7 ministers of finance declared that they are ready to develop “a wide range of options to address Ukraine’s financing needs and to ensure that Russia cannot wait it out. Amongst others, these measures include using, in a coordinated way, the full value of the RSAs immobilized in our jurisdictions.”

Our advice to Western leaders is to seize the moment and follow through. They can impress us once again by making a “concrete decision” at the European Council meeting later this month. A reparations loan drawing on frozen Russian funds is the right thing to do morally, financially, and legally. It is also good politics. Today’s Western leaders can meet this moment in history, just as the victorious Allied leaders did in the last century.

Vladyslav Rashkovan is Alternate Executive Director at the International Monetary Fund. Greg Wilson is a former Deputy Assistant Secretary at the United States Treasury Department (1986-89).

© Project Syndicate