European Union leaders agreed on Thursday to meet Ukraine's "pressing financial needs" for the next two years.

But they stopped short of endorsing a plan to use frozen Russian assets to fund a giant loan to Kyiv.

The reason? Belgium. It wasn't a red light, but their concerns were big enough to slow the wheels and clearly frustrate Ukraine President Volodymyr Zelenskyy.

Belgium's stance was crucial as a Belgian financial institution, Euroclear, holds the assets that would be used to fund a loan of $163 billion to bolster Ukraine in its conflict with Russia. 

Belgian Prime Minister Bart De Wever said his country needs concrete and solid guarantees before supporting the proposal to distribute Moscow's frozen assets, pointing out the plan is "unchartered territory".

His government argues it could expose Euroclear to litigation and ultimately create a major financial crisis.

"Can this plan be legal? That is a very good question. There are no clear answers," De Wever said after attending the EU summit in his country's capital where it was one of the subjects being discussed with EU leaders.

"We will in any case be buried in litigation. That seems like a certainty."

De Wever called for the "full mutualization" of financial risks and the provision of airtight guarantees from all member states. He also urged that Russian sovereign assets held in other European jurisdictions be added to the common pot.

How would using frozen Russian assets work? 

Under international law, sovereign assets cannot be confiscated, so the European Commission has put forward a plan to allow EU governments to use up to $217 billion – most of the $244 billion worth of Russian sovereign assets currently frozen in Europe – without confiscating them.

At the outset of the conflict in Ukraine, Euroclear was holding bonds for the Russian central bank. As these bonds have matured, the resulting cash has become stuck in Euroclear because of EU sanctions against Moscow.

Euroclear now invests the cash in the European Central Bank. The idea is for Euroclear to instead invest in zero-coupon bonds issued by the European Commission.

The EU would then use the cash to issue a "Reparations Loan" to Ukraine, in tranches, according to needs. The loan would only be repaid by Ukraine once it receives reparations from Russia in a peace agreement, effectively allowing Ukraine to spend the money now, rather than wait until Moscow pays up.

'Complex and not trivial'

Many EU governments had hoped the leaders, meeting in Brussels, would give their blessing to the concept and ask the European Commission, the EU's executive body, to come up with a formal legal proposal in the coming weeks.

But a text backed by all the leaders – except Hungary's Prime Minister Viktor Orban – was watered down from previous drafts to ask the Commission for "options for financial support based on an assessment of Ukraine's financing needs".

"Russia's assets should remain immobilized until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by its war," the declaration added. The aim is now for EU leaders to reach a deal in December.

"This is a topic that is certainly not trivial. It's very complex," European Commission President Ursula von der Leyen said after the summit. "It was also very clear that there are points to be clarified."

Zelenskyy, a guest at the summit, urged the EU to approve the loan proposal quickly.

How has Moscow responded?

Russia said it would deliver a "painful response" to any move by the EU to seize its frozen assets.

"Any actions with Russian assets without Russia's consent are null and void from the standpoint of international and contract law," Foreign Ministry spokeswoman Maria Zakharova said.

"There is no legal way to take someone else's funds without hurting the pockets and prestige of those who expropriate them. Any confiscatory initiatives from Brussels will inevitably result in a painful response. 

"We will act in full compliance with the principle of reciprocity in international relations, based on our own interests and the need to compensate for the damage caused to Russia. We urge you to think twice before taking reckless actions."