In December 2025, the European Council agreed to provide Ukraine with €90 billion in joint EU borrowing for 2026-2027. The financing is structured as an interest-free loan for Ukraine but will be funded by issuing bonds on the capital markets, backed by the EU budget and ultimately guaranteed by participating member states.

This development marks a significant shift in the financial architecture of the European Union: it deepens fiscal integration without formal treaty change, transfers contingent liabilities to national taxpayers across the Union, and does so in the context of an ongoing war whose end remains unpredictable.

Critics argue the plan is flawed, fiscally, democratically, and strategically, and that the pain it imposes on EU member states, especially smaller economies like Malta, outweighs its benefits. Moreover, the decisions by Hungary, Slovakia and the Czech Republic to opt out of the scheme can be justified on sound fiscal and democratic grounds.

This article argues that the €90 billion loan represents a structurally risky financial instrument, with uncertain repayment prospects, inadequate democratic oversight and problematic strategic signalling. It assesses how the scheme affects the EU collectively and then focuses on Malta, a small, net recipient state with distinct vulnerabilities. Finally, it examines why the opt-out states' decisions are not only defensible but may point towards a healthier model of fiscal responsibility and democratic accountability in the Union.

1. The architecture of the €90 billion loan and its inherent flaws

1.1 From frozen assets to joint borrowing: A strategic retreat

When the proposal was first advanced, several EU leaders floated the idea of directly appropriating frozen Russian central bank assets, amounting to several hundred billion euros, to finance Ukraine. Even if one were to set aside the formidable legal objections that quickly emerged, the proposal was ethically indefensible from the outset. The forced conversion of sovereign reserves into a political financing tool represents a profound violation of the principles of custodianship, neutrality, and trust that underpin the global financial system. Central bank assets are not discretionary funds; they are held to guarantee monetary stability and international confidence. To repurpose them for geopolitical objectives, even in pursuit of a cause deemed just, would erode the moral distinction between lawful sanction and arbitrary expropriation.

Legal advisors in key EU member states, most notably Belgium, where a substantial portion of these assets is held, were swift to warn that confiscation or coerced use would likely breach international law and established norms protecting sovereign property. Yet the deeper issue was not merely legality but legitimacy. By normalising the idea that frozen assets may be redeployed at political convenience, the EU would have set a precedent that undermines the very rule-based order it claims to defend. Such a move would invite retaliation, encourage capital flight, and weaken Europe's credibility as a safe and predictable financial jurisdiction.

The eventual abandonment of this proposal in favour of joint borrowing does not represent prudence so much as institutional failure. It reveals a policy process in which political ambition preceded both legal grounding and ethical reflection. Rather than confronting the moral hazard inherent in asset seizure, EU negotiators simply displaced the risk onto European taxpayers. The resulting financing mechanism socialises long-term liabilities while preserving the appearance of legal compliance, thereby compounding rather than resolving the original flaw.

In this sense, the EU's plan is not merely problematic in its execution but defective at its foundations. It substitutes coercion for consent, expediency for principle, and financial engineering for strategic coherence. Whether through unlawful confiscation or legally sanctioned debt mutualisation, the underlying logic remains the same: the externalisation of war costs through mechanisms that weaken trust, dilute accountability, and compromise the ethical standards upon which Europe's economic and legal order depends.

1.2 Open-ended financial exposure and the illusion of repayment

The €90 billion is formally a loan, but repayment conditions are blurred. The political rhetoric around it sometimes frames the financial support as temporary, conditional and repayable if circumstances allow, notably through hypothetical future reparations from Russia. However, such reparations have no established legal basis and would require complex international adjudication that could take years, if not decades, with no guarantee of success.

An instrument that relies on contingent, hypothetical future revenue streams to justify billion-euro-scale commitments brings substantial risk. Absent reliable repayment, the loan ceases to be a loan and becomes, in effect, a large deferred transfer from European taxpayers to Ukraine, without the democratic authorisation that such transfers would normally require.

Further, the debt will be issued at market rates. While Ukraine's portion is interest-free, the EU itself will incur interest costs and administrative expense, which must be paid out of the EU budget. Because the EU does not have a direct tax base, these payments ultimately fall on member states, either through higher contributions or reduced allocations in other areas of the budget.

1.3 Lack of a clear strategic end-state for the war

A fundamental flaw in the logic of the loan lies in its misalignment with both a credible political strategy for ending the conflict and the European Union's own budgetary and constitutional framework. EU leaders have repeatedly pledged support for Ukraine "for as long as it takes", yet such open-ended language sits uneasily with the principles of fiscal discipline, proportionality, and legal certainty embedded in the EU treaties. By removing any temporal or strategic limits on expenditure, the loan mechanism undermines the requirement that Union spending be clearly defined, conditional, and justified by identifiable policy objectives.

Under Article 310 of the Treaty on the Functioning of the European Union (TFEU), the EU budget must remain balanced, while Articles 311-312 TFEU require that revenue and expenditure be subject to democratic authorisation through the Multiannual Financial Framework (MFF). An open-ended financing commitment, decoupled from a defined political endgame, strains these constraints by creating long-term liabilities that extend well beyond the budgetary cycles approved by national parliaments. Although structured as a loan rather than direct expenditure, the instrument effectively embeds contingent fiscal obligations within the EU system, blurring the line between permitted budgetary flexibility and de facto debt mutualisation.

The problem is compounded by the circumvention of the Union's traditional conditionality mechanisms. EU financial assistance is ordinarily tied to measurable benchmarks, reform milestones, and review clauses, reflecting both sound financial management and treaty-based principles of accountability. In contrast, the current approach offers no clear success criteria, no enforceable exit strategy, and no credible mechanism for scaling down support if political or military conditions fail to improve. This erodes the safeguards that are meant to prevent permanent fiscal commitments arising from temporary crises.

In the absence of a clearly articulated endgame, financial support risks becoming a quasi-permanent obligation, potentially lasting for decades. This creates significant moral hazard on both sides. Ukraine may defer politically difficult reforms or compromises in the expectation of indefinite external financing, while the EU may become locked into an escalating funding trajectory due to reputational concerns and domestic political pressures. Over time, such dynamics threaten not only fiscal sustainability but also the integrity of the EU's legal order, as emergency instruments are normalised in ways never envisaged by the treaties.

2. Broader negative impacts on participating EU member states

2.1 Pressures on the EU Budget and future fiscal priorities

The €90 billion loan will be serviced and, if necessary, restructured through the EU budget over many years. Participating member states must contribute to these future budgetary demands. This has several implications:

1. Crowding out of other budgetary priorities:

Areas such as cohesion policy, climate transition, research and innovation, digital infrastructure, and social investment may face slower growth or reductions in real terms if a larger share of budgetary resources is devoted to debt servicing.

2. Constrained flexibility in next Multiannual Financial Framework (MFF):
   The EU budget is negotiated years in advance. The financial shadow cast by the €90 billion loan raises the risk that subsequent MFFs will allocate a higher share of resources to servicing past commitments, leaving less room for strategic investment in emerging priorities.

3. Intergenerational equity concerns:

Future generations may bear the costs of current commitments without deriving proportionate benefits, particularly if repayment is not achieved in full due to Ukraine's long-term economic disruption.

2.2 Democratic accountability and the EU's institutional design

Decisions to undertake large joint liabilities in the EU context are made primarily in intergovernmental fora such as the European Council and the Council of Ministers. National parliaments have limited influence, and the European Parliament, which represents EU citizens directly, has no authority to raise revenue through taxation, limiting its leverage over fiscal matters.

This dynamic raises serious democratic legitimacy issues:

• Citizens are financially liable for large commitments but have no direct institutional channel to shape those decisions.
• National parliaments are marginalised in decisions that substantially affect national budgets and future fiscal space.
• The European Parliament's constraints on revenue powers weaken its ability to enforce accountability.

Together, this undermines the normative foundation of democratic representation and consent in fiscal matters.

2.3 Macroeconomic risks and sovereign debt implications

Even if the EU issues the debt in small increments, the cumulative stock will be very large and will be reflected in the perceived fiscal risk of member states. Rating agencies and capital markets are aware that the EU budget is backed by national contributions. Large new liabilities increase the contingent obligations of national governments, potentially affecting:

• Sovereign credit ratings
• Investor confidence
• Long-term borrowing costs for national governments

Scaling up common debt issuance also creates a precedent: once joint borrowing for one purpose becomes normalised, future crises (climate catastrophes, systemic banking crises, energy shocks) may be financed on similar terms, further entrenching collective liability without clear democratic checks.

3. The Maltese context: risks and vulnerabilities

Malta's position in the EU is shaped by its status as a small island economy, its reliance on EU cohesion funding, and its commitment to fiscal stability. These characteristics determine how the €90 billion loan will impact the country.

3.1 Dependence on EU Funding for strategic development

Malta is a net recipient of EU funds, particularly cohesion and structural investment money, which support:

• Infrastructure modernisation
• Environmental transition projects
• Research and innovation programmes
• Social inclusion efforts

EU allocations supplement national budgets and are vital for sustaining long-term growth. Any shift in budgetary priorities that reduces Malta's share of funds harms its capacity to invest domestically.

If future EU budgets are constrained by servicing the €90 billion loan, Malta's funding for strategic priorities such as digitalisation, energy transition and youth employment may be cut or stagnate relative to needs.

3.2 Fiscal contingent liabilities and Maltese budgets

Malta's debt-to-GDP ratio is relatively low compared with many EU states, and its fiscal policy emphasises prudent management. However, as an EU member state participating in the loan scheme, Malta is obliged to contribute proportionally to the costs associated with debt servicing.

The sums involved are substantial, particularly for smaller member states such as Malta, and represent resources that could otherwise be directed towards pressing domestic priorities. These include strengthening healthcare capacity, addressing housing affordability, investing in education, or providing meaningful taxation relief. For countries with limited fiscal space, such commitments are not marginal adjustments but significant budgetary trade-offs with tangible social and economic consequences.

Unlike larger economies, Malta cannot easily absorb fiscal shocks or spread contingent liabilities over a broad domestic tax base. Thus, small additional financial obligations have outsized impacts on national planning.

3.3 Political and social consequences in Malta

Public perceptions matter. Maltese citizens may increasingly perceive substantial external financial commitments, particularly those linked to a prolonged foreign conflict, as diverting political attention, fiscal capacity, and policy urgency away from pressing domestic priorities that directly affect everyday life. When resources are committed to distant and open-ended external objectives, the opportunity costs become more visible at the national level, especially in a small state with limited administrative and fiscal margins. This perception is reinforced when domestic challenges remain unresolved or worsen over time, creating a sense that external obligations are being prioritised over immediate social and economic needs, such as:

• Housing market distortion and generational inequality, where young people face declining affordability and limited access to long-term, stable housing
• Infrastructure strain, including road congestion, public transport inefficiencies, and delayed investment in essential utilities
• Education quality and workforce skills, especially the underfunding of vocational training, digital skills, and research capacity
• Public sector capacity and governance reform, where administrative modernisation and regulatory enforcement remain under-resourced
• National debt sustainability, particularly in a small economy vulnerable to external shocks and rising interest rates
• Social cohesion and inequality, as low-income households and pensioners experience widening gaps in income security
• Migration management and integration pressures, which require sustained investment in services, housing, and labour oversight
• Economic diversification, leaving Malta overly reliant on a narrow set of sectors such as construction, tourism, and gaming
• Public trust in institutions, where perceptions of external prioritisation risk deepening political disengagement and scepticism

This perception can fuel:

• Political disaffection, particularly among younger voters and low-income households who feel structurally excluded from policy priorities
• Euroscepticism, not necessarily in overtly anti-EU terms, but through growing cynicism about the Union's responsiveness and fairness
• Pressure on mainstream parties to repatriate competences or restrict further integration, especially in areas related to fiscal policy, defence, and external financing

Beyond these immediate effects, the longer-term risk is a gradual erosion of the implicit social contract between citizens and European institutions. While Malta remains broadly pro-EU, public support has historically rested on the perception that European integration delivers tangible, proportionate benefits to everyday life. When fiscal commitments appear remote from domestic realities, or when national sacrifices are framed as obligations rather than choices, trust weakens.

Over time, this disconnect can translate into lower electoral engagement in European affairs, diminished legitimacy for EU-level decision-making, and greater volatility within Malta's political system. In such an environment, even traditionally pro-European electorates may begin to question not membership itself, but the direction, scope, and accountability of integration, an outcome that risks undermining both national cohesion and the long-term stability of the Union.

4. Why the opt-out states are justified

Hungary, Slovakia and the Czech Republic secured opt-outs from the €90 billion loan arrangement, meaning they will not bear direct financial liability for the joint borrowing. This position, while frequently criticised by mainstream EU actors and institutions, rests on legitimate economic, democratic, and strategic grounds. From a fiscal perspective, opting out limits exposure to long-term contingent liabilities and protects national budgets from commitments over which domestic parliaments exercise limited control. Democratically, it reflects the principle that electorates should not be bound to open-ended financial obligations lacking clear mandates or exit conditions. Strategically, it signals a preference for national discretion in foreign policy financing, rather than automatic participation in collective instruments whose long-term consequences remain uncertain.

4.1 Fiscal prudence and risk minimisation

Opt-out states avoid contingent liabilities related to:

• repayment uncertainty,
• possible debt restructuring,
• forced transfers if Ukraine defaults.

By not sharing in joint guarantees, they protect their national budgets from obligations that may extend for decades with no clear end.

This is sound risk management: governments preferentially avoid open-ended commitments when repayment prospects are uncertain and when there is no enforceable source of recovery.

4.2 Respecting domestic democratic preferences

Public opinion in these countries is generally more cautious towards open-ended financial commitments abroad, particularly in the context of wars that are not formally bound to their own security interests.

Opting out signals:

• responsiveness to electorate concerns about fiscal burdens,
• respect for national democratic mandates,
• prioritisation of domestic welfare.

This aligns with democratic theory: governments should be accountable to their citizens for major budget decisions.

4.3 Strategic clarity and avoidance of moral hazard

By refusing to participate, opt-out states emphasise the need for a structured political solution to the conflict, rather than indefinite financial support. They highlight that:

• open-ended financing without exit conditions reduces pressure for diplomatic resolution,
• perpetual external funding creates moral hazard for both debtor and creditor countries,
• European strategic focus should broaden beyond a single theatre.

This perspective, grounded in long-term strategic thinking, calls for a European security policy that balances military assistance with diplomatic initiatives and economic resilience.

4.4 Defence of institutional stability and treaty principles

Opt-out states raise concerns about:

• whether fiscal integration of this scale should occur without formal treaty change,
• the democratic deficit in EU decision-making on joint debt,
• the potential for unintended constitutional consequences.

Their stance defends institutional clarity, treaty integrity, and long-term stability.

4.5 Fiscal disproportionality and small-state constraints

By contrast, Malta was afforded no comparable opt-out, despite its vastly smaller economic base and more limited fiscal capacity. Unlike larger or more politically assertive member states, Malta remains structurally constrained in its ability to resist or renegotiate participation in EU-level financial instruments, even when their long-term implications are disproportionate to national scale. As a result, Malta is bound into a joint borrowing arrangement that exposes it to contingent liabilities over which it exercises minimal influence, both in terms of policy design and strategic direction.

In budgetary terms, its proportional share of the €90 billion loan carries material consequences for Malta. Based on its contribution key, Malta's implicit exposure could amount to tens of millions of euros over the life of the instrument, a non-trivial sum in the context of the Maltese national budget. Such an obligation is not merely accounting-neutral: it represents foregone fiscal space that could otherwise be deployed for domestic investment, deficit reduction, or resilience against external shocks. For a small economy with limited borrowing capacity and high sensitivity to interest rate changes, these commitments carry amplified risk.

This asymmetry highlights a deeper inequity within the Union's decision-making architecture. While differentiated integration is tolerated, and even accommodated, when invoked by larger or more geopolitically significant states, smaller member states often lack the leverage to secure similar exemptions. For Malta, participation is effectively obligatory rather than voluntary, raising questions about genuine consent, fiscal sovereignty, and the practical limits of equality among member states. Over time, such imbalances risk entrenching a two-tier system of integration, where flexibility is selectively applied and financial risk is unevenly distributed.

5. Towards a balanced European strategy

The €90 billion loan raises important questions concerning the scope of the European Union's competences, the boundaries of collective financial action, and the appropriateness of imposing binding fiscal commitments in support of a foreign country engaged in armed conflict. These questions are not solely fiscal in nature but engage broader constitutional and ethical considerations. The EU was not originally designed as a mechanism for sustained external conflict financing, nor have its founding treaties explicitly envisaged the routine use of common financial instruments for such purposes.

From a constitutional perspective, the imposition of collective financial obligations in support of a foreign conflict merits careful scrutiny. While the Union possesses significant latitude in coordinating economic and external action, compelling participation in large-scale, open-ended financial arrangements may strain principles of conferral, proportionality, and democratic accountability. This is particularly relevant where the practical consequences of such commitments extend beyond established budgetary cycles and limit the capacity of national legislatures to exercise effective oversight.

There are also normative considerations that warrant measured attention. Financial assistance linked, directly or indirectly, to the continuation of armed conflict raises difficult ethical questions, especially when contributions are mandatory rather than discretionary. While humanitarian assistance occupies a well-established and broadly accepted legal and moral space, the distinction between humanitarian support and broader financial involvement in wartime economies is not always clear. This ambiguity underscores the need for restraint and legal clarity when designing Union-level instruments in this domain.

A more balanced European strategy would therefore emphasise respect for national democratic processes and the limits of EU competence in matters closely related to war and peace. Support for third countries in conflict situations should, as far as possible, remain grounded in voluntary participation, clear legal mandates, and defined objectives. Absent these safeguards, there is a risk that exceptional measures adopted in response to specific crises may incrementally reshape the Union's constitutional settlement without sufficient deliberation.

Ultimately, the long-term legitimacy of EU action depends not only on effectiveness but also on adherence to foundational legal principles. Ensuring that external financial commitments remain proportionate, transparent, and democratically accountable is essential if the Union is to preserve both internal cohesion and the credibility of its legal order.

5.1 Financial sustainability and democratic oversight

Long-term financial commitments must be balanced with:

• clear repayment mechanisms,
• robust oversight from elected parliaments (both national and European),
• transparent evaluation of opportunity costs.

The EU should consider enhancing the European Parliament's fiscal powers and establishing clearer frameworks for joint borrowing that are subject to direct democratic endorsement.

5.2 Strategic clarity and exit conditions

European strategy towards Ukraine should define:

• clear political objectives,
• measurable benchmarks for support,
• criteria for scaling down assistance,
• pathways to negotiated peace.

Without this clarity, financial support risks being open-ended and decoupled from geopolitical realities.

5.3 Protecting smaller member states

EU policy must guard against:

• disproportionate burdens on smaller economies,
• dilution of cohesion and investment funding crucial for convergence,
• political backlash stemming from perceived imbalance between external and internal priorities.

Mechanisms should be introduced that safeguard the interests of net recipient states like Malta when designing EU financial instruments.

Conclusion

The EU's €90 billion Ukraine loan represents a profound shift in European fiscal and strategic practice, but it is one fraught with structural flaws, fiscal risks, democratic deficits and strategic ambiguity. For smaller member states such as Malta, the impacts are particularly acute, given their reliance on cohesion funding, limited fiscal space, and political sensitivity to external commitments.

At the same time, the decisions by Hungary, Slovakia and the Czech Republic to opt out of participating in the loan are not merely political dissent; they are grounded in sound fiscal judgement, responsiveness to domestic constituencies, and a broader strategic realism that Europe urgently needs.

If the EU is to strengthen its role as a coherent actor in world affairs, it must adopt financial instruments and strategic frameworks that are sustainable, accountable, democratically legitimate and strategically defined. Anything less risks undermining both European unity and the prosperity of its individual members.

Professor David Zammit serves as both a lecturer and the Rector of Pro Deo International University in Italy. He has been actively engaged in the field of education for the past 35 years. Throughout his career, he has delivered lectures in various countries and has participated as a speaker at numerous symposia.