After protracted late-night negotiations, European Union (EU) leaders on Friday approved a €90 billion ($105.4 billion) loan package to support Ukraine's military and economic needs over the next two years, shelving a more contentious plan to tap frozen Russian assets.

Analysts say the deal provides Ukraine with short-term relief but also highlights deep divisions within the bloc. With Kyiv's financing needs far exceeding the agreed amount, the EU is attempting to sustain support while navigating legal constraints and internal political resistance.

Unity amid division

According to a European Council statement, the loan will be financed through joint EU borrowing on capital markets and backed by unused EU budget "headroom," which serves as a guarantee for the debt.

A senior EU official said the approach differs fundamentally from the proposed "reparations loan," which would have relied on cash already immobilized within the EU. Instead, the bloc will now borrow externally, incurring interest costs. But the official said the EU budget will subsidize them, so Ukraine does not have to pay.

Because joint borrowing typically requires unanimity, the EU introduced opt-outs to secure agreement. The statement noted that the budget guarantee "will not have an impact on the financial obligations" of the Czech Republic, Hungary and Slovakia, effectively reducing the initiative to a "coalition of 24" within the 27-member bloc.

"Joint borrowing for Ukraine? Grants disguised as loans fueling conflict. Hungary, the Czech Republic, and Slovakia have successfully stayed out of it," Hungarian Prime Minister Viktor Orban wrote on X.

Despite earlier reservations, German Chancellor Friedrich Merz, European Commission President Ursula von der Leyen and other leaders quickly endorsed the deal on Friday, emphasizing unity and urgency.

Analysts at the European Policy Centre (EPC) said the outcome exposes persistent fractures over ambition, solidarity and Europe's willingness to fully deploy its economic power at a critical moment for regional security.

Is €90 billion enough?

Ukrainian President Volodymyr Zelenskyy has warned that without firm funding commitments, Ukraine could run out of money within months, undermining its ability to sustain the war effort.

The International Monetary Fund estimates Ukraine will require about €135 billion in 2026 and 2027 alone, leaving a funding gap of roughly €45 billion even after the new EU package.

Pressure is also mounting in the near term. Analysts at Germany's Kiel Institute warned earlier this month that new aid commitments in 2025 could fall to their lowest level since 2022, well short of what would be needed to offset a potential reduction in U.S. support.

Kiel's data also point to uneven burden-sharing within Europe. While France, Germany and the United Kingdom have increased their contributions, Nordic countries remain the largest donors relative to their economies, whereas Italy and Spain have "contributed very little."

Zhao Yongsheng, director of the French Economy Research Center at China's University of International Business and Economics, said Europe would need 2.5 to 3 times the current €90 billion level in 2026 to stabilize the situation on Ukraine's front lines, especially if U.S. backing continues to wane.

Is the 'reparations loan' off the table?

Belgian Prime Minister Bart De Wever said after the summit that "politics is not an emotional job" and that "rationality has prevailed." Orban was more blunt, declaring the reparations-loan idea "dead, done and dusted."

Still, some EU leaders argue that using Russia's frozen assets should remain on the table. Last week, the Council of the EU decided to indefinitely prohibit any transfer of immobilized Russian central bank assets back to Russia, keeping open the possibility of using them as collateral or a backstop for Ukraine-related financing.

A senior EU official stressed that the new joint-borrowing package remains indirectly linked to those assets, noting that Ukraine would only be expected to repay the loan once reparations are received.

However, analysts warn that any direct use of frozen sovereign assets could revive the same legal and political disputes that derailed the reparations-loan proposal. Zhao said the "reparation loan" concept tests the boundaries of the existing legal and institutional order, and that mobilizing sovereign assets risks crossing legal and political red lines shaped in the post-World War II system.

The European Council on Foreign Relations (ECFR), meanwhile, believes the idea could resurface. Given Ukraine's vast funding needs, the think tank argued that a €90 billion package is far from sufficient. "In other words," ECFR wrote, "this is probably not the last chapter in the story of Russia's central bank reserves."

(With input from Xinhua)