BRUSSELS — Diplomats are working on a long-shot 11th-hour compromise to salvage a deal on sending vital financial aid to Ukraine at Thursday’s high-stakes EU leaders’ summit.

On Wednesday evening Europe’s leaders were split into irreconcilable camps, at least publicly, and seemed unlikely to agree on how to fund Kyiv, thanks partly to the reemergence of the same bitter north-south divisions over joint debt that torpedoed EU unity during the eurozone crisis.

Only a few hours before the 27 leaders gather in Brussels, two opposing groups are crossing swords over whether to issue a loan to Ukraine based on frozen Russian central bank reserves, largely held by the Euroclear bank in Belgium.

Germany along with Nordic and Eastern European countries say there is no alternative to that scheme.

But they are running into hardening resistance from Belgium and Italy, which are gunning for Plan B: Support for Kyiv based on EU debt guaranteed by the bloc’s common budget. Bulgaria, Malta, Hungary and Slovakia are also against the use of the assets.

In a stark illustration of the schism, Italian Prime Minister Giorgia Meloni said on Wednesday she would use the Council meeting to demand answers on the “possible risks” of leveraging the assets, while German Chancellor Friedrich Merz doubled down on the assets plan “to help end this war as quickly as possible.”

Escape plan

The first contours of a potential route out of the impasse — one that would have to be hashed out during hours of negotiations — are beginning to take shape.

European Commission President Ursula von der Leyen cautiously opened the door to joint debt on Wednesday morning during a speech at the European Parliament in Strasbourg.

“I proposed two different options for this upcoming European Council, one based on assets and one based on EU borrowing. And we will have to decide which way we want to take,” she said.

The key to such a plan would be carving Hungary and Slovakia — which both oppose giving further aid to Ukraine — out of the joint debt scheme, four EU diplomats told POLITICO. A deal could still be agreed at the Council among the 27 EU countries, but the ultimate arrangement would stipulate that only 25 would be involved in the funding.

Agreeing such a scheme would give a crucial lifeline to Ukraine’s shattered public finances as its coffers risk running dry as early as next April.

Hungary’s Viktor Orbán is already predicting the assets will not be discussed in Brussels, and that negotiations have shifted to joint loans. Multiple diplomats, however, retorted that Orbán was wrong and that the Russian assets were still “the only game in town.”

Crunch time

Despite growing political pressure on the EU to prove it can rise to meet the existential challenges facing Ukraine, diplomats from the rival camps were often skeptical on Wednesday that a compromise could be found.

The idea of EU joint debt has for years been anathema to the northern member countries, who have been unwilling to underwrite bonds for highly indebted southern countries.

“The closest [situations] to what’s happening now with frozen assets are the 2012-2013 financial crisis and Greece’s bailout in 2015,” said a senior EU diplomat who, like others quoted in this story, was granted anonymity to speak freely.

With respect to the Ukraine war, the northerners deny they oppose the use of eurobonds over concerns about the solvency of other EU countries, but argue they prefer the assets because they would provide a greater long-term cash infusion to Ukraine.

“This is not about frugals versus spenders. It’s about being pro-Ukraine or not,” said a second EU diplomat, adding that northern and eastern European countries have taken the lead in bankrolling Ukraine’s war needs over the past four years.

Backing the Belgians

Despite weeks of painstaking negotiations over the assets, efforts to bring Belgium around are backfiring. The country adamantly opposes using the Russian money held by Euroclear in Brussels, and has now attracted allies.

“[The Commission] created a monster, and they’ve been eaten by it,” said a third EU diplomat, referring to the assets plan.

Germany and its allies, however, warn there is still no alternative to targeting the Euroclear money.

“If you want to do something together as Europeans, the reparations loan is the only way,” a fourth EU diplomat said.

The idea behind the assets-based loan is that Kyiv would not have to repay it unless Moscow coughs up the billions-worth of reparations needed to rebuild Ukraine’s pulverized cities — an unlikely scenario.

Belgian Prime Minister Bart De Wever is expected to push the Commission to explore joint debt during Thursday’s summit of EU leaders — in the hope that others around the table will echo his demands.

His supporters claim the model “is cheaper and offers more clarity,” said a fifth EU diplomat.

But critics point out it will also require the political blessing of Hungary’s pro-Russia Prime Minister Orbán — who has repeatedly threatened to torpedo further financial aid to Kyiv.

The impasse would require the Commission to concoct a workaround to keep Ukraine afloat while allowing Orbán to save face, according to the four EU diplomats. In exchange for his support the Commission could spare Hungarian and Slovak taxpayers from having to pay for Ukraine’s defense.  

“The Commission now pushes joint loans, but we will not let our families foot the bill for Ukraine’s war,” Orbán wrote on X on Wednesday afternoon. He added that “Russian assets will not be on the table at tomorrow’s EUCO [European Council].”

However, a senior EU official was quick to reject the Hungarian leader’s claim that the Russian reserves were no longer in play. “The reparations loan is still very much on the table,” they said.

Bjarke Smith-Meyer, Gabriel Gavin and Gerardo Fortuna contributed to this report