Chancellor Friedrich Merz's ambitious three-month campaign to establish Germany as Europe's undisputed leader has hit a significant roadblock. His central proposal – to provide Ukraine with a massive €201bn (£176bn) reparations loan funded by frozen Russian central bank assets – was decisively rejected at a European Council summit in Brussels.
A Setback for Merz's Vision
Instead of the chancellor's plan, EU leaders agreed on a €90bn interest-free loan for Ukraine, backed by the bloc's collective budget. This will cover roughly two-thirds of Kyiv's estimated needs for 2026-27. The rejection stemmed from firm opposition led by Belgium, where most of the frozen Russian assets are held via the Euroclear depository. Belgium argued seizing the assets outright was unlawful, a position supported by France and Italy, who refused to indemnify Brussels against potential legal claims.
Merz had framed the issue as a defining test of European decisiveness. His advocacy marked a stark personal reversal; in August, he expressed concerns that such a move could deter central banks from holding euros. By September, he performed a volte-face, arguing in the Financial Times that dramatic action was needed to disrupt Vladimir Putin's calculations. Despite a last-minute personal appeal to Belgian Prime Minister Bart De Wever, Merz could not secure the necessary support.
The Unwavering Geopolitical Ambition
Despite this reverse, the chancellor shows no intention of retreating from the assertive international role he envisions for Germany. A self-described disillusioned Atlanticist, Merz operates on two core beliefs: that European security is tied to Ukraine's, and that a fundamental, tectonic shift has occurred in transatlantic relations, moving beyond normal diplomatic fluctuations.
He recently invoked German sociologist Max Weber's concept of holding "a nerve fibre of historically important events," underscoring his perception of a pivotal moment. Merz has been openly critical of the US stance, stating, "I see no need for the Americans to now want to save democracy in Europe. If it were to be saved, we could do it ourselves." He has also bluntly contradicted Donald Trump's assessment of Russia, warning that Putin, like Hitler in 1938, will not stop and declaring the era of Pax Americana over.
Strategic Gains and Domestic Risks
While failing on the asset seizure, Merz secured key strategic objectives. Europe will retain stewardship of the frozen Russian funds, and they will not be released until Moscow pays reparations – potentially by repaying the new EU loan. This ensures Europe keeps a crucial seat at any future Ukraine peace negotiations, countering earlier US efforts to control the assets.
Symbolically, Merz positioned Berlin as a diplomatic hub, hosting US negotiators Steve Witkoff and Jared Kushner for peace talks and sitting alongside President Zelenskyy. He has also committed to a massive €378bn increase in defence spending by 2029 and is reviving a form of military conscription.
However, significant political risks loom. The far-right Alternative for Germany (AfD), running level with Merz's CDU in polls, will capitalise on any battlefield setbacks in Ukraine. A YouGov poll shows 45% of Germans want reduced support for Kyiv. Merz's lofty focus on geopolitics may alienate voters concerned with domestic issues like pensions. As he told the Bundestag, future generations will judge Germany on its contribution to freedom, not the safety net of its pension system – a noble sentiment that may not translate into electoral reward.
The chancellor's gamble on Russian assets may have failed, but his broader quest to transform Germany into a confident, leading geopolitical power remains firmly on course, setting the stage for a turbulent period in European politics.
