EU aid cuts: A short-term approach to a long-term budget
Mikaela Gavas, February 2013
European Commissioner for Development, Andris Piebalgs in Burma/Myanmar. Photo: European Union 2013
EU aid cuts: A short-term approach to a long-term budget
EU leaders have finally reached their decision on the size and shape of the EU budget from 2014 to 2020. Against a continued backdrop of austerity and faced with domestic political pressure, it is no surprise that they have cut the EU’s long-term budget in real terms, by €34 billion, from the current €994 billion to €960 billion. What is a surprise is that, in spite of all the rhetoric around making the EU ‘fit for the challenges of the modern age’, they have left it with a 20th century budget that is largely inefficient and out of date.
In 2020, just under 40% of the EU budget will continue to be spent on farm subsidies that hold back growth, whilst just below 6% will go towards addressing global challenges, such as global poverty, humanitarian crises and global security.
Although the EU’s foreign assistance budget (Heading 4 – ‘Global Europe’) has not been cut, its growth rate is ever so slight at 1.8%, from €57.7 billion from 2007-2013 to €58.7 from 2014 to 2020. The really bad news is that the other source of development aid, the European Development Fund (EDF), which importantly, finances cooperation with some of the poorest and most fragile states in Sub-Saharan Africa, like Somalia and the Democratic Republic of Congo, will effectively be frozen at current levels for the next seven-year period. The EDF will continue to operate as a separate fund outside of the EU budget, based on Member States’ direct contributions. However, the fund has been cut by €3.34 billion from the European Commission’s proposal so that seven Member States – Austria, Belgium, Denmark, France, Italy, Luxembourg, the Netherlands and the UK – will all contribute less towards the EDF from 2014-2020 than what they currently contribute. This is in spite of the fact that all major assessments of the EDF in the last five years have rated it a strong performer and more effective than other EU financial instruments.
So, where does this actually leave the EU in its fight against poverty and its long-standing pledge of achieving 0.7% of Gross National Income for aid by 2015?
In 2010, the EU Member States’ collective aid spending was €53.5 billion, or 0.44% of GNI. In 2011, that share fell to 0.42%. In 2012, the share is forecasted to remain stagnant at 0.42%. The Member States have forecasted that, by 2015, their collective development aid will reach 0.45% of GNI, a far cry from 0.7%. Given that the Member States count their contributions to the EU budget as part of their individual efforts towards the 0.7% target, increasing aid levels in the EU budget would have helped them to meet their pledge.
The leveraging effect of EU budget levels is particularly significant for Member States with smaller development assistance budgets that channel a large share of development aid through the EU institutions, such as Portugal, Ireland, Poland or Slovenia. At the same time, those Member States with large development assistance budgets, like the UK, can leverage a greater overall effect towards the EU collective 0.7% target through their comparatively low contributions on a relative basis, just by protecting and supporting development assistance in the EU budget.
Currently, around 18% of the €53 billion of Member State aid is channelled through the EU budget and managed by the EU institutions. If the Member States hit their forecast for 2015, so that their collective aid reaches 0.45% of GNI, then the aid share managed by the EU institutions will remain at around 18%. If, however, the Member States actually meet their 0.7% target in the next seven years, the EU’s market share will decline substantially to 12%. This is because of the lack of channels for increasing EU aid – the EU budget and the EDF are now set to 2020. The problem is that the EU is now becalmed. And the smaller the EU’s footprint, the less it will be able to be a driving force in EU policy.
EU leaders have taken a short-term approach with a long-term budget. They have focused on the quantity at the expense of the quality. They have decided to continue to fund CAP although it is a bad return on investment for EU taxpayers and does not effectively address today’s emerging global challenges. They have decided to freeze the EU aid budget and they remain further than ever from honouring their 0.7% commitment to the world’s poorest people.
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Mikaela Gavas
Mikaela Gavas is an ODI Research Associate. She has worked in the EU institutions – Commission ...
