EU governments will have to provide bilateral grants or raise new joint debt to fund Ukraine if they are unable to agree a deal to use frozen Russian assets for a €140bn loan to Kyiv, Brussels has warned.

In a letter to member states on Monday seen by the Financial Times, European Commission president Ursula von der Leyen said Ukraine needed €135.7bn over the next two years to cover its military and fiscal needs. She laid out three options available to EU capitals: national grants, new joint debt or leveraging the immobilised Russian assets.

The letter is aimed at raising the pressure on governments to agree to a €140bn “reparations loan” proposed by the commission earlier this year, which Belgium has so far blocked for fear of legal and financial repercussions. Neither bilateral grants nor more joint EU debt are palatable options for most member states.