EU leaders face 'make-or-break' summit as unity frays on trade, Ukraine funding

BRUSSELS (CN) — European Union leaders gather Thursday and Friday for what senior officials are calling a “make-or-break” summit, with deep divisions threatening to derail key decisions on financial support for Ukraine and a major South American trade deal.

The two-day European Council meeting — comprising all EU leaders — comes at a precarious moment for the 27-nation bloc. With Washington pushing a Ukraine peace plan that sidelined European leaders andTrump openly courting the continent’s far-right movements, conventional wisdom suggests the EU should be rallying together.

Instead, member states are pulling in opposite directions on multiple fronts, raising questions about whether Europe can muster the political will to address mounting external pressures. At stake are decisions that will shape Europe’s economic partnerships and its commitment to Ukraine as the war enters its fourth year.

But the summit also serves as a stress test for an institution increasingly paralyzed by internal disagreements, with Hungary and Slovakia blocking consensus on Ukraine while France and Italy threaten to torpedo the EU’s biggest trade agreement in two decades.

Ukraine financing deadlock

The most critical item on Thursday’s agenda is Ukraine financing. EU foreign policy chief Kaja Kallas struck an unusually somber tone at Monday’s foreign ministers meeting, warning that leaders could fail to secure Belgium’s support for a proposed “reparations loan” of 210 billion euros ($247 billion) backed by frozen Russian assets.

“I’m optimistic by nature, but I’m also seeing how difficult it is,” Kallas said.

Thursday’s summit aims to secure a political commitment from leaders to move forward with the loan, even though final legislative approval won’t come until the European Parliament votes in late January. The loan can pass with a simple majority vote and is favored by most member states.

But the dispute isn’t about whether to support Ukraine — it’s about how to pay for it. Reaching even that preliminary agreement has proven difficult, and the battle lines are hardening into an ideological fight over EU debt.

Belgium’s concern is the funding mechanism. Germany wants the EU to swap cash held by Euroclear, the Brussels clearinghouse holding most of the frozen Russian cash, for EU bonds. Belgium wants the EU to raise money on open markets instead, avoiding direct use of Euroclear funds that could expose Belgium to Russian retaliation.

The commission on Monday offered Belgium three specific guarantees: Belgium could access funding equal to the entire package if facing legal claims from Moscow; it could rely on this safety net regardless of what other EU countries promise; and no money would be transferred until protections are in place. The commission even told all member states to scrap their investment treaties with Russia at the same time.

Belgium is no longer alone. Four other countries — Italy, Malta, Bulgaria and the Czech Republic — now want the EU to explore joint debt instead.

Germany insists joint debt is a nonstarter because it requires unanimity, giving Hungarian Prime Minister Viktor Orbán an effective veto. Without an EU-wide guarantee, the loan amount would be capped at whatever voluntary guarantees individual countries provide — including countries like the UK and Canada — potentially far less than the 210-billion-euro ceiling. Chancellor Friedrich Merz warned Monday that failure would cause the EU to be “severely damaged for years.”

“Whatever the guarantee is, that’s the amount that will ultimately be available to Ukraine,” said Tetyana Nesterchuk, counsel at Fountain Court Chambers who specializes in international disputes, in a phone call with Courthouse News.

The financing debate takes on added urgency following Monday’s talks in Berlin, where the U.S. offered Ukraine security guarantees similar to NATO’s mutual defense clause — the strongest security pledge the Trump administration has made. Trump said a deal to end Russia’s war was “closer now than we have ever been,” though the offer comes with implicit pressure on Kyiv to accept terms quickly.

Merz described the discussions as opening a “real peace process,” though sharp divisions remain over territorial questions.

Ukraine needs the money by spring. On Tuesday, EU officials signed a convention in The Hague establishing an International Claims Commission to determine compensation owed to Ukraine for war damages — over 70,000 cases have already been registered. The mechanism underscores the scale of reconstruction funding that will be needed, making the deadlock over financing all the more consequential.

“Russia will not escape the bill for the homes, schools or hospitals it has destroyed in Ukraine,” Kallas said at the signing ceremony.

The Mercosur standoff

Beyond Ukraine, the EU-Mercosur trade deal represents the summit’s second major hurdle — a sprawling agreement with Argentina, Brazil, Paraguay and Uruguay that has been in the works for over two decades. Commission President Ursula von der Leyen had hoped to fly to Brazil on Saturday for a signing ceremony, but France has demanded a delay and Italy swung behind Paris on Monday night.

Aside from agricultural concerns, the agreement carries significant geopolitical weight. China overtook Europe as Mercosur’s top trading partner in 2017 and has invested heavily in the region since. The deal represents Europe’s attempt to reclaim economic influence in South America while demonstrating its commitment to rule-based international trade as Trump’s tariff threats loom.

“Signing this agreement will probably give a very strong signal that the EU is open for business,” said Oscar Guinea, senior economist at the European Centre for International Political Economy. “It can actually manage to sign agreements with other countries based on the rule of law.”

French farmers have nonetheless led vocal opposition, fearing cheap South American beef and poultry will undercut them. Parliament voted Tuesday to give Brussels a quick trigger: If imports jump just 5% or prices dip below EU levels by the same margin, the EU can investigate and potentially block the products. Lawmakers also want Mercosur producers to meet EU environmental and labor standards — or stay out.

More than 145 lawmakers from across parties are poised to request a legal opinion from the EU’s Court of Justice, which could delay the deal until summer 2027 or even 2028. With France and Italy digging in their heels, the agreement’s fate remains uncertain even as Denmark, which is chairing EU meetings this semester, tries to push it across the finish line this week.

As leaders arrive in Brussels this week, they face decisions on both Ukraine financing — which officials say must be resolved to meet the country’s second-quarter 2026 funding needs — and the Mercosur trade deal, where von der Leyen’s planned Saturday signing in Brazil hangs in the balance.

Courthouse News correspondent Yuval Molina is based in Brussels, Belgium.