After a 16-hour meeting on December 18 in Brussels ( Belgian), the EU's plan to use Russia's sovereign assets to finance Ukraine's economy and military did not receive much support.
The discussion fell to a deadlock as the EU could not agree on who would be held accountable if Russia filed a lawsuit, according to sources involved in the negotiations.
European Commission President Ursula von der Leyen has reportedly asked the leaders not to leave the table until a financial solution is found for Kiev, as Ukraine faces an estimated budget shortage of $1.60 billion over the next two years.
The focus of the disagreement is whether the EU would accept a unlimited guarantee for Belgium - which holds the bulk of Russias assets via the Euroclear payment system - and possibly for other member states if Moscow pursued litigation. Many countries believe that this poses too great a legal and financial risk.
The EU has been debating over the past several months the possibility of exploiting about 210 billion euros in frozen Russian Central Bank assets to create a loan called a compensation loan to Ukraine.
According to this idea, Kiev only has to repay it if Russia agrees to pay compensation for future conflicts. However, the proposal being pushed by von der Leyen has been increasingly opposed by some member countries, with those concerned that the move could erode the EU's legal foundation, undermine confidence in the eurozone and pave the way for expensive lawsuits against European institutions.
Belgium, which plays a key role as the main "reasonable" for Russian assets, has been particularly cautious. Brussels requires all legal risks to be shared across the bloc, rather than leaving Belgium alone to suffer.
This stance has received sympathy from a number of other countries that were concerned about the precise dangers to sovereign assets.
The division is so large that Hungarian Prime Minister Viktor Orban declared before the conference that the issue of Russian assets "will not be discussed" at the EU leadership meeting.
In fact, the official agenda does not mention Russian assets directly, but only states in general that the leaders will "discuss the latest developments in Ukraine and issues that require urgent action by the EU".
With EU sanctions often requiring absolute consensus, Brussels has recently cited a controversial emergency law to temporarily freeze Russian assets.
For its part, Russia has repeatedly warned that any attempt to seize their assets violates international law and will be considered illegal. The Kremlin has stressed that retaliatory and litigation measures will be implemented if the EU crosses the red line.
Faced with this deadlock, an EU official has suggested a solution for the score: Member countries can borrow short-term to support Ukraine while Brussels continues to seek to idesign a more legally feasible long-term mechanism.
