Ukrainian President Volodymyr Zelenskyy had appealed for a quick decision to keep Ukraine afloat in the new year.

Ukrainian President Volodymyr Zelenskyy in Brussels on Thursday.Stephanie Lecocq / Pool / AFP via Getty Images

European Union leaders agreed on Friday to provide a massive interest-free loan to Ukraine to meet its military and economic needs for the next two years, EU Council President Antonio Costa said, but they failed to agree to use frozen Russian assets to raise the funds.

"We have a deal. Decision to provide 90 billion euros ($106 billion) of support to Ukraine for 2026-27 approved. We committed, we delivered," Costa said in a post on social media. The money would be borrowed by the EU on capital markets and underwritten by the 27-nation bloc`s seven year budget.

French President Emmanuel Macron described the deal agreed as a major advance, saying this option "was the most realistic and practical way" to fund Ukraine and its war efforts. He added that the deal included a mechanism to protect three countries - Hungary, Slovakia and the Czech Republic - from any financial fallout.

German Chancellor Friedrich Merz also hailed the decision, which came after EU leaders worked deep into Thursday night to reassure Belgium that they would provide guarantees to protect it from Russian retaliation if it backed the loan for Ukraine.

"The financial package for Ukraine has been finalized," Merz said in a statement, noting that "Ukraine is granted a zero-interest loan."

"These funds are sufficient to cover the military and budgetary needs of Ukraine for the two years to come," Merz added. He said the frozen assets will remain blocked until Russia has paid war reparations to Ukraine. Ukrainian President Volodymyr Zelenskyy has said that would cost over 600 billion euros ($700 billion).

"If Russia does not pay reparations we will - in full accordance with international law - make use of Russian immobilized assets for paying back the loan," Merz said.

Zelenskyy had appealed for a quick decision to keep Ukraine afloat in the new year. The International Monetary Fund estimates that Ukraine will need 137 billion euros ($161 billion) in 2026 and 2027. The government in Kyiv is on the verge of bankruptcy, and desperately needs the money by early next year.

Polish Prime Minister Donald Tusk warned early on Thursday that it would be a case of sending "either money today or blood tomorrow" to help Ukraine.

Some 210 billion euros ($246 billion) worth of Russian assets are frozen in Europe, most of them in the Belgian financial clearing house Euroclear. Belgium had objected to the loan plan, calling it legally risky and warning that it could harm Euroclear`s business.

Belgium was rattled last Friday when Russia`s Central Bank launched a lawsuit against Euroclear to prevent any loan being provided to Ukraine with frozen Russian funds.

But Costa said: "The reserves its right to make use of the immobilized assets to repay this loan."